Even as Ghana’s economy begins to breathe again after BoG began easing policy rate, the governor says it will not hesitate to tighten the grip if the need arises.
Dr. Johnson Asiama says that the BoG will maintain strong liquidity management and sterilisation measures, even as it gradually eases monetary policy.
Speaking at the ongoing World Bank/IMF Annual Meetings, the Governor said that when he assumed his position, there was a lot of liquidity that had built up in the system. This made it necessary for the bank to undertake a tight monetary policy to mop up excess liquidity, hence the serious sterilisation.
With the Central Bank’s mandate to maintain price stability, he assured the entire world at the meeting that even though they are now easing the policy rate, the bank will still hold the anchor strong.
This means the Bank of Ghana is allowing interest rates to fall slightly to make borrowing easier and support business recovery. However, it won’t sit aloof for the economy to be flooded with excess money that could fuel inflation again.
This careful balance, the Governor said, is part of a broader strategy that has helped Ghana achieve significant disinflation, a steady reduction in inflation rates that were once among the highest in the region.
He further recognized that the feat the bank has achieved with the management of inflation was a result of a complementary effort across all fronts. Dr. Asiama adds that the credibility of the BoG has been strengthened through an improved monetary framework, working closely with fiscal authorities.
“When we came in, we saw that we had to do a number of things. Even the entire monetary policy framework needed to be upgraded. We needed to strengthen the credibility of the central bank. There was a lot of liquidity, you know, that had built up. And so we needed to do lots of sterilisation. We also needed the complementary, you know, efforts from the fiscal authorities. And so we had to engage the fiscal authorities at the same time. And then you also needed to look at food prices. So it was a complementary effort across all fronts that has helped to deliver the disinflation we are looking at,” he admitted.
“Currently, even though we are easing, we are still holding that anchor very strongly. A strong liquidity management, strong sterilisation. For that, we will not compromise, even as we ease downward,” he added.
The assurance from the Governor is especially meaningful for businesses and investors who have been cautiously watching the central bank’s next move. Many have welcomed the gradual easing of policy rates, which reduces borrowing costs and can stimulate investment. But there’s also concern that too much easing could reignite inflation and weaken the cedi.
The BoG’s firm stance seeks to calm such fears. By keeping liquidity management and sterilisation tight, the Bank aims to ensure that every cedi in circulation is backed by sound monetary control, preventing a repeat of the money oversupply that once sent inflation soaring.
