Bank of Ghana progresses with liquidity management reforms – IMF

The International Monetary Fund (IMF) has confirmed that reforms to the Bank of Ghana's liquidity management framework are progressing well, following the first review of the country's 36-month Policy Coordination Instrument (PCI). This assessment formed part of the IMF's evaluation of Ghana's structural reforms, which are currently on track.

The liquidity management framework allows the Central Bank to regulate the amount of cedi liquidity in the banking system, either by absorbing excess cash to curb inflation or by injecting funds to prevent shortages and sharp increases in interest rates.

Led by Ruben Atoyan, Mission Chief, the IMF team visited Accra from October 22 to November 4. They emphasized that completing the remaining reforms on schedule would support Ghana's macroeconomic stability and translate economic gains into jobs and prosperity. Some of the commitments include introducing a seven-day bill as the main instrument for short-term liquidity management, providing banks with unrestricted end-of-day access to lending and deposit facilities to stabilize overnight interest rates, and publishing clear rules governing daily monetary operations.

Previously, Dr Johnson Pandit Asiama, Governor of the Bank of Ghana, highlighted the transition from the 56-day bill to the 14-day bill, which has made liquidity management more responsive and flexible. The Bank of Ghana now primarily uses the 14-day bill alongside the overnight facility to manage liquidity conditions. This shorter maturity period enables more frequent assessment and adjustment of liquidity, allowing the Bank to respond effectively to changing market conditions and ensure the efficient transmission of monetary policy.

The Bank reviews liquidity conditions weekly, adjusting available instruments accordingly to support the inflation target.

Despite the positive developments, IMANI Centre for Policy and Education Vice President, Bright Simons, cautioned that the operating model underlying the gains was financially unsustainable. This is due to losses from sterilizing excess cedi liquidity, generating further losses as the Bank borrows at interest rates of between 15 and 27 percent while earning returns of only four to five percent. Additionally, revenue from money creation has declined.