[ 2012-06-14 ]
Bank Of Ghana Mops Up GH¢1.2 Billion Excess Liquidity
The Bank of Ghana (BoG) has mopped up GH¢1.2
billion in excess liquidity from the system in a
bid to stem the exchange rate pressure and reduce
the demand for dollars.
In a move to halt the growing trend of
‘dollarisation’ and stabilise the cedi, the
central bank is also reviewing the currency
composition of the reserve requirements of
The Governor of the BoG and Chairman of the
Monetary Policy Committee (MPC), Mr Kwesi
Amissah-Arthur, at a news conference in Accra
Wednesday, announced a hike in the prime interest
rate by 50 basis points to 15 per cent, the third
rate hike this year, as part of efforts to fend
off mounting inflation and stabilise the local
Dollarisation is characterised by a tendency for
businesses to sell their goods and services in
foreign currencies, particularly dollars.
Service providers quote exchange rates that are
significantly off-market. The fringe exchange
rates trickle down into the market and become
benchmark rates, unduly influencing market rates.
The situation has fuelled price increases in the
country and led the BoG to tighten monetary
policy, alter bank reserve requirements and
reintroduce several bonds.
“The committee notes that the measures have begun
to take effect. Increase in the policy rate has
led to upward adjustments in rates of money market
instruments and improve the attractiveness of cedi
assets, compared to foreign currency assets,” Mr
According to the governor, though the BoG was not
considering abolishing the operation of foreign
exchange accounts by citizens, it would move to
restore the pre-eminence of the cedi in domestic
transactions, which required strict adherence to
the provisions of the Foreign Exchange Act 2006
(Act 723) and the accompanying regulations.
“It is our view that this will contribute to
restoring confidence in the cedi,” he said, adding
that “the bank will issue the necessary notices to
this effect in due course”.
He was worried about the large dollar deposits in
commercial bank accounts, which he said had
significantly contributed to the exchange rate
The share of foreign currency deposits to total
deposits in the banking system increased from 27.9
per cent in April 2010 to 28.2 per cent in April
2011 and 31.8 per cent in April this year.
This means that some commercial banks have more
foreign currency deposits than domestic currency
in their total deposit.
The BoG feared that those banks could be importing
large volumes of foreign currency to service the
needs of their clients.
During the first five months of this year, the
cedi has depreciated cumulatively by 15.1 per cent
against the US dollar, compared to 1.9 per cent
depreciation in the same period of 2011.
In recent weeks, however, the pace of depreciation
of the cedi has moderated as a result of the
measures introduced to restore stability.
The real effective exchange rate depreciated by
6.8 per cent between January and April 2012,
compared with a real appreciation of 5.9 per cent
in the same period of 2011.
But Mr Amissah-Arthur assured Ghanaians that the
end of the cedi fall was in sight.
Source - Other
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