Ghana central bank merges Monetary Policy rate with Reverse Repo rates

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Bank of Ghana
Bank of Ghana

The Bank of Ghana has merged its benchmark policy rate with the reverse repo rate, which is the effective rate at which Bank of Ghana lends to commercial banks, a release issued here on Wednesday said.

Bank of Ghana
Bank of Ghana

This is part of steps to ensure transparency in the monetary policy stance of the Bank of Ghana.
In spite of the change, the bank said the policy rate would continue to bear the name Monetary Policy Rate since it shall continue to be referred to as such and will be positioned at 24 percent.

“These changes, in effect, do not reflect a change in monetary policy stance, since the maximum lending rate of the Bank of Ghana remains unchanged at 25 percent,” the bank said.

The statement, signed by Caroline Otoo, Secretary to the Bank, explained that the Reverse Repo Facility, which starts operation Thursday, is the principal instrument through which Bank of Ghana will inject liquidity into the banking system during periods of general liquidity shortage.

Bank of Ghana said it had therefore introduced a seven-day Reverse Repo (lending) Facility available to all banks to help them manage liquidity more effectively.

Although the benchmark policy rate is what officially guides commercial banks in the fixing of their lending rates, practically that situation doesn’t work in Ghana as commercial banks peg their interest rates above the Treasury Bill rate (TB Rate +).

Due to government’s large appetite for short-term domestic debt instruments, the commercial banks will rather lend to government at that rate than to lend to the privates sector at lower interest rates.
To the private sector in Ghana, availability and cost of capital has been one of the major challenges to business growth over the years.

The central bank therefore announced during its last Monetary Policy Committee’s Press Conference to merge the policy rate and the reverse repo rate to bring transparency into the setting of interest rates by commercial banks. Enditem

Source: Xinhua

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