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Business News of Wednesday, 24 November 2021


Business Word for the day - Monetary policy

The Bank of Ghana Headquaters The Bank of Ghana Headquaters

Monetary policy is the management of the supply of money and interest rate in a country.

According to investopedia, It is used to guide a country's central bank to achieve sustainable economic growth by controlling the overall supply of money that is available to the nation's banks, its consumers, and its businesses.

In the case of Ghana, the central bank i.e. the Bank of Ghana is responsible for observing and adjusting the supply of money in the economy.

The primary objective of the Bank of Ghana is to maintain stability in the general level of prices, as stated under section 3 of the Bank of Ghana Act 2002, (Act 612), as amended.

In addition to price stability, the Bank is enjoined to support the general economic policy of Government, promote economic growth and development, and ensure effective and efficient operation of the banking and credit system; and contribute to the promotion and maintenance of financial stability.

As per this mandate, the monetary policy committee headed by the Governor of the Bank of Ghana, meets bi-monthly for three days to assess current economic conditions and the inflation outlook. After deliberations, the monetary policy rate decision is finalized by a vote of the Committee on a one-person one-vote basis, with each member stating clearly and with reasons the choice of a preferred decision.

The goal is to keep the economy at a balanced rate. The central bank may force up interest rates on borrowing in order to discourage spending or force down interest rates to inspire more borrowing and spending.

The main weapon at the disposal of the Bank of Ghana is the nation's money. The central bank sets the rates at which it lends money to various bank in the nation. An increase or decrease in the rates set by the Bank of Ghana causes all financial institutions to adjust the rates they charge all of their customers.

The Central bank can revise interest rates, direct lending to banks and change bank reserve requirements.

Currently, Ghana’s monetary policy rate stands at 14.5% after it was reviewed in May 2021 to 13.5%. The review has however been attributed to the rising inflation rates.