High interest rates make Open Market Operations costly – BoG says
The Bank of Ghana (BoG) has firmly denied allegations that it is deliberately maintaining high policy rates to generate profit. This response comes in the wake of reports suggesting the central bank has been increasing the policy rates for financial gain.
The BoG asserts its unwavering commitment to implementing sound monetary policies aimed at achieving stable inflation, aligned with its medium-term objectives. Bernard Otabil, the Director of Communications at BoG, emphasized the bank’s dedication to fostering stable inflation and promoting exchange rate stability within a floating currency regime.
“Achieving low and stable inflation helps to promote exchange rate stability under a floating currency regime, which is key. The BoG is committed to pursuing sound monetary policies aimed at achieving stable inflation in line with its medium-term target,” he noted.
Commitment to Economic Stability
Mr Otabil stressed that the central bank’s primary focus is on ensuring economic stability and enhancing the welfare of the Ghanaian population. He refuted the notion that central banks globally use policy rate hikes for profit, explaining that such actions are counterproductive to central bank operations.
“Anyone who would make such a claim, perhaps, does not understand central banking fully because high interest rates are rather inimical to the operations of central banks. High interest rates raise the cost of our open market operations and lead to large losses,” he stated.
Open market operations (OMOs) – the purchase and sale of securities in the open market by a central bank – are a key tool used by the Central Bank in the implementation of monetary policy.
Clarification on Central Bank Operations
Mr. Otabil elaborated on the nature of central banking, highlighting the inherent challenges associated with increasing policy rates to achieve price stability. He underscored that central banks are not profit-driven institutions and do not face the same financial constraints as private entities.
“Central banks are not commercial banks and do not seek profits, nor do they face the same financial constraints as private institutions. Central banks, by the nature of their work, are supposed to provide a public good, and that public good is low and stable inflation which comes at a cost,” he added.
Focus on Public Good
The BoG’s stance reinforces its role as a steward of monetary policy, aimed at fostering economic stability rather than pursuing profit. The central bank’s approach to policy rates is driven by the objective of maintaining price stability, a crucial factor for the overall health of the economy.
As the BoG continues to navigate the complexities of monetary policy, its commitment to transparency and sound economic principles remains clear, ensuring that the primary goal of low and stable inflation is pursued for the benefit of the broader Ghanaian economy.
