BoG mops-up GH¢11.29bn to shield cedi • But economists warn of structural weaknesses
The Bank of Ghana’s decision to withdraw GH¢11.28 billion from the financial system through a 14-day bill auction is being viewed by economists as both a sign of policy discipline and a reminder of the structural weaknesses that continue to shadow the country’s economic recovery.
The sizeable liquidity mop-up, one of the largest in recent months, reflects the central bank’s determination to preserve gains made in inflation and exchange-rate stability.
Yet beneath the apparent calm, analysts warn that the operation reveals an economy where excess cash is accumulating faster than productive investment opportunities.
For policymakers, the challenge is increasingly clear: how to sustain macroeconomic stability without suppressing the flow of credit needed to drive growth, industrial expansion and job creation.
"The Bank of Ghana is effectively preventing excess liquidity from finding its way into the foreign exchange market," said Professor Godfred Bokpin, Professor of Economics and Finance at the University of Ghana.
The alternative, he argues, would be renewed pressure on the cedi as investors and businesses seek refuge in dollar-denominated assets.
"So, even though interest rates have come down, businesses should be taking credit to expand, but that is not happening at scale.
The economy is not utilising that liquidity, so the central bank has to mop it up. Otherwise, it will be used to buy dollar-denominated assets, which will cause the cedi to depreciate," he said.
The central bank's Tender 864, conducted on June 3, saw investors subscribe GH¢11.28 billion in 14-day Bank of Ghana bills at rates ranging between 10.40 per cent and 11.00 per cent.
The instrument recorded a weighted average interest rate of 10.93 per cent.
While the operation underscores the Bank of Ghana's continued vigilance, Prof. Bokpin believes it also exposes a more fundamental problem: the country's recent stability gains have not been anchored in a transformation of the productive economy.
"The manner in which we have achieved economic stability will require the Bank of Ghana to continue monetary tightening and liquidity management for the next couple of years," he said.
"The reason is that our macroeconomic stability is not driven by the transformation of the economy. We have not done anything fundamental about the structure of the economy that can anchor the stability of the cedi."
The warning comes as the country enjoys one of its most stable macroeconomic periods in years. Inflation remains below historical averages despite inching up to 3.7 per cent in May from 3.4 per cent in April, while the cedi has remained relatively resilient against major trading currencies.
Stability test
Yet economists say the stability rests heavily on active central bank intervention rather than a broad-based strengthening of domestic production and exports.
Prof. Bokpin pointed to what he described as emerging arbitrage opportunities between cedi and dollar assets.
"As we speak right now, there is some level of arbitrage in the market. If you had bought dollars at the beginning of this year, you would have been far better off than buying a treasury bill, because the yield on treasury bills is far lower than the yield on the dollar," he said.
Such dynamics, he warned, create incentives for investors to move funds into foreign currency holdings whenever excess liquidity becomes available, posing a latent risk to exchange-rate stability.
For banking consultant Dr Richmond Atuahene, the central bank's strategy is achieving its immediate objectives but carries an economic cost that is often overlooked.
The liquidity being absorbed, he argues, represents resources that could otherwise be financing productive sectors of the economy.
"At the end of the day, we may be maintaining stability, but the real hit to the economy is that this liquidity the Bank of Ghana is mopping up could have gone into production and manufacturing," he said.
Dr Atuahene acknowledged that open market operations remain a critical instrument for controlling inflation and managing liquidity conditions, but questioned whether repeated sterilisation can substitute for deeper economic reforms.
"These open market operations are good for taming inflation, bringing interest rates down and stabilising the economy. But we must be honest — it is nothing new. The Bank of Ghana has been doing this, and it comes at a significant cost to the central bank's balance sheet," he told Graphic Business.
Policy balancing act
Unlike Treasury bills, which are issued to finance government expenditure, Bank of Ghana bills are designed primarily as monetary policy instruments. Their purpose is to absorb excess liquidity from the banking system and maintain control over short-term money market conditions.
The scale of the latest auction suggests policymakers remain concerned about the volume of liquidity circulating within the financial system despite the moderation in inflation.
The operation also reinforces the central bank's cautious stance following the Monetary Policy Committee's decision to maintain the policy rate at 14 per cent.
For now, the strategy appears to be working. Inflation remains contained, market liquidity is being managed and pressure on the cedi has eased.
The broader question, however, is how long monetary policy can shoulder the burden of stability in the absence of stronger productive growth.
As Ghana's recovery enters a new phase, economists say the focus must increasingly shift from managing excess liquidity to creating the conditions that encourage businesses to invest, borrow and expand.
Until then, the central bank may find itself repeatedly draining funds from the financial system—not because the economy lacks money, but because it lacks sufficient opportunities to put that money to productive use.