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Bank of Ghana Signals Gradual Review of Cash Reserve Rules Amid Economic Balancing Act

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Bank Of Ghana
Bank Of Ghana

The Bank of Ghana (BoG) has initiated plans to reassess its cash reserve ratio (CRR) policy for commercial banks, Governor Dr. Johnson Asiama revealed during a high-stakes dialogue with banking executives this week.

The move, framed as a cautious recalibration rather than an abrupt overhaul, underscores the central bank’s bid to stabilize liquidity conditions without derailing fragile economic progress.

Speaking at a February 21, 2025, meeting with the Ghana Association of Banks (GAB), Dr. Asiama acknowledged mounting industry pressure to revise the CRR—a regulatory lever determining the portion of customer deposits banks must hold in reserve. While stopping short of committing to immediate cuts, he pledged a “phased” review to avert economic shocks. “We recognize the strain this ratio places on financial intermediation,” he said, referencing banks’ longstanding complaints that the 14% CRR imposed in March 2023 has inflated operational costs and stifled lending.

The 2023 hike, aimed at curbing excess liquidity during a period of inflationary turbulence, drew fierce pushback from lenders who argued it penalized domestic currency deposits. Two years on, the BoG now faces a delicate balancing act: loosening constraints on banks while guarding against a resurgence of inflation, which remains a persistent threat to Ghana’s economic recovery.

The discussions also cast light on broader financial sector headaches. GAB members urged the central bank to relax limits on foreign exchange holdings (nostro accounts) and scrap rules requiring mining and oil firms to sell export earnings directly to the BoG. Bankers contend that routing these dollar flows through commercial institutions would improve transparency in Ghana’s forex market, where exchange rate volatility has eroded investor confidence.

Dr. Asiama further addressed risks in the remittance sector, dominated by money transfer operators (MTOs) and fintech platforms. While acknowledging their role in driving financial inclusion, he warned of “regulatory gaps” enabling forex losses and hinted at tighter oversight. Commercial banks were urged to collaborate in streamlining the sector—a nod to concerns over illicit flows and pricing opacity.

In a concession to lenders grappling with illiquid government bonds, the BoG chief announced an extension of pandemic-era relief measures under the Domestic Debt Exchange Programme (DDEP). The special dispensation, set to expire in April 2025, had shielded banks from abrupt losses on restructured cocoa-sector debt (COCOBOD bonds). With COCOBOD’s finances still shaky and secondary markets for these bonds frozen, the extension offers temporary breathing room.

The Governor closed with a stark reminder of the link between fiscal discipline and financial stability. Noting a rise in non-performing loans, he stressed that taming inflation through “prudent fiscal policies” remains critical to lowering borrowing costs and reviving credit flows. He also reaffirmed commitments to double agricultural financing, spotlighting the Ghana Incentive-Based Risk-Sharing System (GIRSAL) as a pillar of efforts to de-risk farm lending.

Analysis:

The BoG’s measured tone reflects Ghana’s precarious economic tightrope. While banks demand relief from stringent reserve rules, policymakers remain wary of sparking inflationary flare-ups or currency instability. The CRR review—likely to unfold incrementally—will test the central bank’s ability to spur lending without loosening its grip on liquidity. Meanwhile, calls to redirect mining and oil dollars into commercial banks highlight a broader quest to deepen forex markets and reduce reliance on central bank interventions. Yet with global cocoa prices volatile and COCOBOD’s debt overhang unresolved, Ghana’s financial sector faces headwinds that no CRR tweak alone can dispel. How the BoG navigates these crosscurrents could shape the country’s economic trajectory for years.

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