Recent monetary policy moves: Stimulating lending or mopping up excess liquidity?
In response to recent inflationary pressures and exchange rate volatility, the Monetary Policy Committee (MPC) of the Bank of Ghana took decisive action. Similar to measures by central banks worldwide, the MPC significantly increased the policy rate (MPR) from 14.50% in January 2022 to 30% by the end of 2023. Although this move successfully lowered inflation from historic highs of above 50% to the current 25.80%, it potentially came at a significant cost. Many observers note that the high monetary policy rate is effectively competing with treasury bill rates for banks liquidity, thereby impeding the pace of decline in short-term...
