Dr. Zakari Mumuni, the First Deputy Governor of the Bank of Ghana (BoG), has asserted that the recent strengthening of the Ghana cedi is not coincidental but rather the outcome of intentional and disciplined policy measures, particularly at the national level.
“This may be unprecedented,” Dr. Mumuni remarked during the PM Express Business Edition last Thursday. ”
Analyzing the data from the inception of the floating rate regime to the present, this is the only instance within the initial four to five months that we have observed such a degree of strength in the Ghana cedi.”
He disclosed that the local currency has appreciated by 12.2% since the start of the year. “At the same time last year, we experienced a depreciation of approximately 13%.
Thus, this represents a complete turnaround from the previous situation,” he emphasized. While he recognized that both domestic and international factors have impacted the cedi’s performance, Dr. Mumuni underscored that the majority of the improvements are attributable to internal policy decisions.
In this instance, it is evident that domestic factors carry greater significance in this performance compared to external factors.
Central to these improvements is a contentious yet intentional approach to monetary policy. ‘We increased the policy rate. Many, including GUTA, criticized us with various remarks. Analysts expressed their dissatisfaction,’ he recounted.
‘However, we were fully aware of our actions, and the results are now becoming evident,’ he stated with assurance. The Bank’s choice to tighten monetary policy, he clarified, was driven by a singular aim — disinflation. ‘We adjusted or tightened monetary policy for one purpose — to effectively re-engineer the disinflation process.’ This objective was pursued vigorously through the management of liquidity.
We have been exceptionally effective in sterilizing liquidity, as stated by Dr. Mumuni. He emphasized that this is being achieved through our open market operations. He remarked that this initiative to absorb excess cedi liquidity has contributed to the stabilization of the currency.
Dr. Mumuni further explained, ‘This is significantly aiding in the removal of cedis from circulation, which is directly associated with the policy decision implemented.’ He also referenced a previous adjustment to the cash reserve ratios of banks.
‘This has already contributed to the sterilization of some cedi liquidity within the system, which is a factor in this stability,’ he noted. While he recognized the costs associated with these policies, he expressed confidence in their importance. ‘Although it was not well-received, we remained committed, and the results are now evident.’
