Bank of Ghana Signals Review of Cash Reserve Ratio to Ease Liquidity Strain

The Bank of Ghana (BoG) has signaled its intention to gradually review the Cash Reserve Ratio (CRR) for commercial banks, indicating a potential shift in policy aimed at maintaining financial stability while addressing liquidity concerns. This announcement came during a meeting with the Ghana Association of Banks (GAB), where key industry challenges, including the impact of the CRR on banks, were discussed.

Governor Dr. Johnson Asiama shared that the central bank recognizes the pressures caused by the current CRR and is committed to critically evaluating the ratio. However, he emphasized that any adjustments would be phased to avoid triggering unintended economic consequences, ensuring the changes don’t disrupt broader macroeconomic stability.

The CRR, which currently stands at 14%, has been a point of contention among banks. Many argue that the high reserve requirement limits their ability to lend, impacting financial intermediation and increasing operational costs. In March 2023, the BoG raised the CRR from 12% in an effort to tighten liquidity and stabilize inflation, but the banking sector has since called for a reduction to ease lending constraints.

Additionally, discussions at the meeting addressed Ghana’s credit rating challenges and their effects on correspondent banking relationships. Banks urged the BoG to reconsider exposure limits for international transactions, specifically Nostro and affiliate exposure limits, to alleviate pressure on these relationships. Dr. Asiama assured that the central bank would evaluate measures to address these concerns, taking into account the challenges faced by banks in maintaining correspondent links.

SOURCE: CITI NEWSROOM