Director of the Institute of Economic Affairs (IEA), Dr John Kwakye has called out the Bank of Ghana for deploying monetary policy instructions to finance the 2024 budget at the expense of domestic banks.

He argued that the existing high interest rates and increase in Cash Reserve Ratio (CRR) have resulted in hostile conditions for banks which have impacted the access to liquidity for borrowing and operations.

Speaking at a press conference held on April 3, 2024, the IEA Director of the Research raised concerns over the Central Bank’s Monetary Policy Committee's decision to deny banks the opportunity to have enough capital to provide lending to private sector.

"Because the banks are deprived of that much (cash) in terms of their deposits they take from the public, they have less deposits to be able to lend to the public, they use at a monetary control instrument,” the IEA boss said.

He continued, “these are not the solution to the problem. Bank of Ghana contributed to excess liquidity in the system through monetary financing of the budget and then turn around to mop the excess liquidity through very high interest rates, and very high reserve requirements.”

Dr. Kwakye maintained that the abrupt increase in Cash Reserve Ratios from 15% to 25% effective April 2024 was rather aggressive and potentially detrimental to the stability of the country’s banking sector and the general economy.

The IEA Director therefore recommended the Central Bank to urgently revise the rate to a more moderate level.

He suggested pegging it to a rate of 5 percent to provide the needed boost for domestic banks and enhance private sector lending.

MA/SA