New CRR Policy Successfully Withdraws Excess Cedi Liquidity In Economy – BoG
Governor of the Bank of Ghana, Dr Ernest Addison, has stated that the bank’s objective for the implementation of the new cash reserve ratio (CRR) has been achieved.
Making the disclosure at the 119th Monetary Policy Committee (MPC) press briefing on Friday, July 26, 2024, the Governor quipped the intention of the new CRR requirement was to withdraw as much cedi liquidity as possible from the economy.
“Really, the objective behind that particular policy measure was to withdraw as much cedi liquidity as possible from the economy and the data that we have suggests that we have been able to do that,” he remarked.
The new CRR policy by the BoG which took effect in April this year, mandates banks to adhere to the following cash reserve ratios based on their respective loan-to-deposit ratios:
- Banks with a loan-to-deposit ratio exceeding 55% will be subjected to a currency Cash Reserve Ratio of 15%.
- For banks maintaining loan-to-deposit ratios ranging between 40% and 55%, a Cash Reserve Ratio of 20% will be enforced.
- Banks with loan-to-deposit ratios falling below 40% will face a more stringent requirement, with a Cash Reserve Ratio set at 25%.
The new CRR requirements by the BoG seek to galvanize the loan book expansion of banks amid a backdrop of limited policy support for broader economic growth.
Reports indicate that the recalibration of the Cash Reserve Ratio (CRR) of banks based on their Loan-Deposit (L/D) ratio by the Central Bank could stimulate some GHS 50 billion in new lending to the private sector.
Commenting on the impact of the new CRR requirement on lending to the private sector, the Governor averred credit to the private sector is beginning to increase on the back of the policy measure albeit not by significant amounts.
“Since the implementation of that policy, we are seeing credit to the private sector increase, albeit not by a major amount. Remember, this economy is emerging from a crisis. Non-performing loans are higher, and the risks associated with lending are higher. So the banks are being cautious in terms of how much they lend to the private sector,” he noted.
According to data made available by the Central Bank, credit to the private sector at end-June 2024 grew to 17.6% marginally above the 16.1% recorded same period last year.
Well, if you are able to withdraw excess liquidity from the Ghanaian Economy, how come there are still a chunk of old and tattered bank notes in the system? I guess in withdrawing excess liquidity, you will certainly withdraw old notes.