Editorial: Revamping monetary policy toolkit

The Bank of Ghana (BoG) has introduced a 273-day sterilisation bill. They also launched a review of the cash reserve ratio framework. This aims to strengthen monetary policy transmission.

In March, BoG raised its benchmark policy rate by 100 basis points. The new rate is now 28 percent, aimed at curbing inflation.

This decision seems to be working. The local currency rallied nearly 19 percent from April to May. Officials say this has helped contain imported inflation and rebuild market confidence.

Inflation eased to 21.2 percent in April, down from earlier highs. This decline is due to sustained monetary tightening and stable exchange rates. However, it remains above the Bank’s target band of 8 ± 2 percent.

The cedi's strength comes from prudent policies and improving investor sentiment. Favorable external conditions also play a role. However, the Governor warned that this appreciation may not last.

Analysts have noted that the current cash reserve ratio framework limits market influence. It often restricts credit flows to the private sector as well.

By shifting to market-based instruments under Open Market Operations (OMO), the central bank aims for better alignment with policy objectives. This change should foster a more responsive financial system.

The new tools will give commercial banks greater flexibility in managing liquidity positions. This could unlock more lending for households and businesses.

The Monetary Policy Committee (MPC) is expected to announce its decision today, May 23, 2025.