Editorial: Dynamic cash reserve ratio amended

As expected, the Bank of Ghana (BoG) decided to hold its benchmark interest rate steady at 28 percent, citing the need to reinforce the disinflation momentum, and anchor stability in the face of global uncertainties and elevated domestic inflation.

At its 124th Monetary Policy Committee (MPC) meeting last week, the central bank’s unchanged policy rate is aimed at sustaining recent macroeconomic gains amid persistent inflation risks.

However, in a significant policy shift, the BoG announced an amendment to the dynamic cash reserve ratio (CRR) framework. Effective June 5, 2025, commercial banks will be required to hold reserves in the same currency as the deposits they mobilise.

This means foreign currency deposits must now be backed by foreign currency reserves and cedi deposits by cedi reserves.

Bank of Ghana introduced a dynamic cash reserve ratio (CRR) framework – varying by banks’ loan-to-deposit ratios – to discourage overinvestment in government securities and promote private sector lending, with CRRs set at 25 percent for LDRs below 40 percent, 20 percent for LDRs between 40 percent and 55 percent and 15 percent for LDRs above 55 percent.

The move has significantly increased reserves at the central bank and helped absorb excess liquidity. Governor Dr. Johnson Pandit Asiama during a press briefing explained that the change is part of efforts to tighten the liquidity framework and enhance monetary transmission.

Notably, confidence among consumers and businesses has reached its highest point in seven years, supported by declining inflation and a stable exchange rate environment.

The BoG Governor added that the MPC sees a faster convergence toward the medium-term inflation target by first quarter of 2026, provided no major shocks derail the outlook. The end-year inflation target is now at 12 percent.

The MPC, however, notes that inflation remains elevated relative to its medium-term goal. “Despite the gains, inflation is still high and maintaining a tight monetary policy stance is necessary to reinforce the disinflation process,” said Asiama.

The unchanged policy rate signals the bank’s cautious optimism, balancing the need to consolidate gains with recognition of lingering vulnerabilities. The next MPC meeting is scheduled for July 2025.

The post Editorial: Dynamic cash reserve ratio amended appeared first on The Business & Financial Times.

Read Full Story