The Bank of Ghana (BoG) is considering introducing a shorter-dated 7-day bill as part of efforts to improve its management of excess liquidity in the financial system and strengthen the transmission of monetary policy.
The move, disclosed by the Governor of the Bank of Ghana, Dr. Johnson Pandit Asiamah, comes as the central bank continues to refine its liquidity management tools to ensure that money supply conditions remain consistent with its inflation target.
Speaking at the press briefing after the 131st Monetary Policy Committee (MPC) meeting, Dr. Asiamah explained that monetary policy decisions taken by the MPC must be effectively implemented through efficient management of liquidity in the banking system.
He noted that the central bank has gradually adjusted the maturity of its liquidity management instruments, moving away from the longer-dated 56-day BoG bill used previously to the current 14-day instrument, while also relying on the overnight facility window.
According to the Governor, the possible introduction of a 7-day bill reflects the Bank’s continuous assessment of liquidity conditions and its need to respond more quickly to changes in the financial system.
“There used to be the 56-day longer-dated instrument that we made use of last year. We have, you know, moved away from that. Currently, we use the 14-day. And then, of course, there’s the overnight as well, the standard facility window. There are considerations to come down further to possibly introduce a seven-day going forward, but we’ll let you know when that change occurs. But in all this, what we seek to do is to manage liquidity efficiently,” he noted.
Liquidity management is a key part of monetary policy because excessive money circulating in the economy can fuel demand pressures, potentially pushing up prices. By issuing short-term instruments such as BoG bills, the central bank absorbs excess funds from banks and investors, reducing the amount of money available for immediate spending or lending.
It is believed that a shorter 7-day instrument could give the Bank greater flexibility to fine-tune liquidity conditions on a more frequent basis, particularly during periods when large inflows or outflows of funds affect the money market.
Dr. Asiamah stressed that the choice of instruments is guided by the objective of achieving price stability, noting that the Bank continuously reviews liquidity conditions and adjusts its approach accordingly.
