The Bank of Ghana (BoG) has intensified its liquidity management operations, absorbing GH¢28.21 billion from commercial banks through two 14-day bill auctions as it seeks to contain inflationary pressures without disrupting the country’s economic recovery.
The latest auctions, held on July 27 and July 29, underscore the central bank’s increasing reliance on BoG bills to sterilise excess liquidity within the banking system while maintaining its inflation-targeting framework.
Unlike Treasury bills, the 14-day BoG bills are issued exclusively to commercial banks and serve purely as a monetary policy instrument rather than a source of government financing.
The move comes as liquidity conditions have strengthened considerably in recent months after a prolonged period of monetary restraint.
Reserve money, which contracted earlier this year, has rebounded sharply, while broader measures of money supply have accelerated.
According to the Bank of Ghana’s latest monetary data, total liquidity—measured as broad money plus foreign currency deposits—expanded by 28.5 percent year-on-year to GH¢417.6 billion in June.
Reserve money also increased 31.7 percent to GH¢148.5 billion, largely driven by higher reserves held by commercial banks.
The liquidity expansion has been supported by stronger deposit mobilisation, declining interest rates and robust external sector performance, particularly higher export receipts that boosted the country’s net foreign assets.
The BoG acknowledged during its May Monetary Policy Committee meeting that interbank interest rates had remained close to the lower end of the policy corridor, signalling surplus liquidity within the banking system.
Economists say sterilisation through BoG bills is intended to prevent excess liquidity from fuelling inflation, speculative foreign exchange demand and excessive growth in aggregate demand.
However, the central bank appears determined to avoid excessive liquidity withdrawal that could tighten financial conditions and weaken the recovery.
BoG Governor Dr Johnson Pandit Asiama recently identified liquidity management and inflation control as key monetary policy priorities while announcing the end of the Bank’s pre-financing arrangements for domestic gold purchases from July 1, another measure expected to reduce liquidity injections into the economy.
Analysts say the effectiveness of the central bank’s balancing act—containing inflation while supporting economic growth—will be critical to sustaining Ghana’s recent macroeconomic gains.
By: Toma Imirhe / businesspostonline
