BoG overhauls liquidity tools, cuts policy rate to 18%

• brings back 14-day bill
• retires 56- and 273-day instruments

• after draining over GH¢300bn

By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU

The central bank has overhauled its liquidity-management framework and delivered another steep interest-rate cut as inflation fell faster than expected and real interest rates climbed to multi-year highs.

The Monetary Policy Committee – on Wednesday, November 26 – reduced the benchmark rate by 350 basis points to 18 percent, extending a rapidly easing cycle that has now delivered 1,000 basis points of cuts this year.

The move responds to sharply rising real interest rates with headline inflation dropping to eight percent in October, its lowest in more than four years, while Treasury yields remain in double digits.

Governor Johnson Pandit Asiama said the committee agreed that “prevailing high real interest rates provide scope to ease policy to further boost the growth recovery”, noting that the bank is now well within its medium-term inflation target band.

The central bank paired the cut with a significant change in how it manages liquidity. BoG reinstated the 14-day bill as its primary open market operations (OMO) instrument and retired the 56-day and 273-day bills that have dominated liquidity absorption in recent years.

Dr. Asiama said the move marks a return to “the very shorter end of the market”, adding that the medium-tenor bills are being discontinued as part of resetting the OMO framework.

The shift follows an aggressive liquidity-sweeping programme that has seen the central bank sterilise well over GH¢300billion in excess liquidity since January. While the operations helped drive rapid disinflation, they also drained funds from banks and tightened conditions for government borrowing.

Market participants said the new OMO structure could ease some of that pressure.

“Investors had already positioned for a deep cut, with bids concentrated at the front end of the curve,” Constant Capital said in a note ahead of the announcement. The firm expects trading to remain steady in coming days as the market recalibrates short-term yields under the new policy mix.

Treasury yields have been adjusting as real rates tighten. At the last auction, the 91-day rose to 11.14 percent and 182-day increased to 12.68 percent, while the 364-day edged down slightly to 13.06 percent. Despite falling nominal rates, real yields remain elevated given the speed of disinflation.

The macroeconomic backdrop provided further room for easing, with growth indicators staying firm. The economy expanded 6.3 percent in first-half of the year, supported by strong performance in services and agriculture. High-frequency indicators point to continued momentum, with the central bank’s Composite Index of Economic Activity rising nearly 10 percent in September.

The cedi has also strengthened significantly, appreciating 32 percent against the dollar in the year to late November on the back of stronger external inflows, improved FX market operations and an accumulation of reserves which now stand at US$11.4billion – equivalent to 4.8 months of import cover.

Dr. Asiama acknowledged that global risks – including commodity volatility and geopolitical tensions – remain sources of uncertainty. Domestically, high taxes, utility tariffs and elevated credit costs continue to weigh on businesses.

Still, inflation dynamics remain favourable. Courage Kingsley Martey of IC Securities in a post said underlying price pressures were “undeniably low”, citing core measures between 5 percent and 7 percent and a staff forecast that sees inflation ending the year between 4 percent and 6 percent.

He described the policy environment as supportive of “continued but cautious easing”.

Governor Asiama said the MPC will continue to monitor conditions closely, adding that further policy adjustments will depend on inflation risks and the balance of domestic and external pressures.

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