The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has implemented an additional monetary policy measure aimed at absorbing excess capital from the market to regulate inflation.
Currently, inflation has shown a decline, reaching 35.2 percent after peaking at 54.2 percent in December of the previous year.
The new measure, effective as of November 30, 2023, involves the consolidation of the currency holding for the Cash Reserve Ratio requirement on both foreign currency-denominated deposits and domestic currency deposits for banks.
Furthermore, a new unified Cash Reserve Ratio has been introduced for total deposits (both cedi and foreign currency), with the requirement that it be held in cedis.
“This measure is to reinforce the bank’s liquidity management operations to address excess structural liquidity conditions in the market and provide additional impetus to the disinflation process,” Dr Addison, the Governor of the BoG, disclosed this during a news conference at the 115th regular meeting of the MPC in Accra.
He clarified that the Cash Reserve Ratio requirement for foreign currency-denominated deposits and domestic currency deposits of banks was being adjusted to 15 percent.
Dr. Addison assured that the Committee would persist in observing changes within the banking sector and utilizing additional policy instruments when necessary to uphold stability.
The Governor articulated that this new directive would contribute to further reducing inflation and withdrawing surplus liquidity from the market.
Dr. Addison revealed that each of the 23 universal banks had presented recapitalization plans to the BoG. He stated that both the Banking Supervision Department and the MPC had scrutinized these plans and found them to be credible.
“We are quite hopeful that within the next two years most of the banks would have capitalised and be able to meet the capital adequacy threshold without reliefs,” adding, “Right now they are meeting those capital threshold with regulatory reliefs.”
Dr. Addison clarified that the expenditure of GH¢25 billion for the banking sector cleanup did not exclusively benefit banks; rather, some of the funds were allocated to the Savings and Loans as well as the Microfinance sectors.
He noted that certain Savings and Loans and Microfinance institutions lacked tangible assets for the government to sell, hindering the reimbursement of individuals with locked-up funds in those entities.
Regarding the Bank of Ghana’s E-Cedi initiative aimed at promoting a cash-lite economy, Dr. Addison mentioned that the program would not be implemented in the upcoming year.
He explained that the initiative would be rolled out once the ongoing macroeconomic changes were addressed to ensure the program’s objectives were not compromised.