Monetary policy transmission in ghana international monetary fund. Monetary policy implementation in countries where financial markets are sufficiently deep and. In most cases, the common objectives of such policies has been to achieve price stability, ensuring balance of payments equilibrium, creation of employment, and sustainable growth. Babajide, isibor areghan akhanolu and okafor tochukwu subject.
Inflation targeting and outcomes oxford scholarship. The bank of ghana law 1992 contains several clauses that impedes the bogs ability to conduct an independent monetary policy. This paper analyses the evolution of fiscal and monetary variables in ghana, from the. This gives the central government a direct voice in the conduct of monetary policy. Prolonged deviation in the interbank interest rate from the prime rate illustrate the. Historical account of monetary policy implementation in ghana. On ghanas independence in 1957, there was a shift from private to public sector as the main engine of economic growth due to the strong desire to rapidly grow and develop the country into a modern society. Monetary policy aims to maintain the value of money relative to the goods and services it is used to purchase. Monetary policy committee mpc the bank seeks to achieve the governments inflation target by setting a monetary policy interest rate which is decided by the mpc. Financial sector reforms and bank performance in ghana. Perspectives on the question have been influenced, in part, by developments in monetary theory, in part by interpretations of monetary history.
The ghana cedi remained relatively stable against the major currencies in december 2016, on the back of tighter monetary policy, improved sentiments and increased foreign exchange inflows. Inflation will likely fall within the bank of ghana monetary policy target range of 8 percent 2 percent by 2018. Time series and bankspecific data are utilized to highlight linkages between policy, wholesale market, and retail market interest rates. Ghana succumbed to attacks by its neighbors in the 11th century, but its name and reputation endured. The mpc consists of seven members five from the bank of ghana and two external members appointed by the minister of finance. Ghana the human capital index hci database provides data at the country level for each of the components of the human capital index as well as for the overall index, disaggregated by gender. About threefifths of the gdp is derived from the services sector, agriculture contributes almost onefifth, and industry about onefourth. In 1957, when the leaders of the former british colony of the gold coast sought an appropriate name for their newly independent statethe first black african nation to gain its independence from colonial rulethey named their new country after ancient ghana. Working papers describe research in progress by the authors and are published to abstract monetary aggregate targeting as a major monetary policy tool, is principally based on a stable and. Between 1946 1950 gold export rose from 6 million pounds to 9 million pounds. The bank of ghana recently adopted inflation targeting as its monetary policy framework1. Excess liquidity and effectiveness of monetary policy. Headline inflation fell from more than 19 percent in march 2016 to around 12 percent since may 2017 11.
Pdf the effect of fiscal policy and monetary policy on. The question of the effectiveness of monetary policy is a longstanding issue in the literature of monetary economics and central banking. Price stability refers to maintenance of a low and stable inflation. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. Chinas monetary policy and interest rate liberalization. Our analysis shows that responses to changes in the policy interest rate are gradual in the wholesale market. Monetary policies have been pursued in ghana to reorient the economy towards the path of growth. Apr 16, 2020 monetary policy is a central banks actions and communications that manage the money supply. The sum total of bank reserve and currency in the hands of nonbanks public vault cash and balance with apex bank. Monetary policy and trade openness in ghana african journals. The framework has been increasingly viewed as a good monetary policy framework and widely applauded by many economists and policymakers. Movements in headline inflation are largely determined by.
Monetary control in ghana overseas development institute. This paper discusses the evolution of monetary policy in nigeria in the past four decades. Ghana has gone through the stages of policy making to formulate policies to make life better for the citizenry. The aims of this study were to examine the relative importance of monetary policy and fiscal policy on economic growth in ghana and then determine which of these two policies is more powerful in. Monetary policy reaction functions are similar to those estimated for countries with successful monetary policies, and interest rates respond in the theoretically recommended way to inflation shocks. Unsustainable fiscal deficits and public debt levels created the spectre of fiscal dominance in many countries, leading to high and volatile inflation and elevated risk premia on government debt. Ghanas gdp per capita growth rates increased steadily in the past two decades and varied around 57% between 2007 and 2010 see figure1. Monetary policy, growth, development, optiaml rate, foreign investment created date. Figure 1 shows a graph of monetary policy rates mpr, the key interest rate set by the monetary policy committee of the bank of ghana, the 12month inflation rate and the announced inflation target in ghana since 2002. Choice of monetary policy regime in ghana bank of ghana july 2008 abstract bank of ghana. Specifically, the existence of fiscal dominance, a persistent liquidity overhang, an. An inflationtargeting regime has been in place in ghana since 2007, but compared to other inflationtargeting countries it has been conspicuously. The objective of monetary policy is to maintain price stability in the economy.
Monetary policy consists of decisions and actions taken by the central bank to ensure that the supply of money in the economy is consistent with growth and price objectives set by the government. He was also ghanas rst chief economic advisor in 19571958, but nkrumah and lewis strongly disagreed over the policies to be adopted for the development of ghana. His economic analysis and its policy recommendations for ghana serve as a use. Brief overview of the conduct of monetary policy in ghana. Pdf choice of monetary policy regime in ghana researchgate. Monetary policy and its effectiveness on economic development in nigeria author.
A representative of the mof is one of the 12 members of the bogs board of directors. Ghanas modern economic history, the disinflation however remains a debate in policy discourse as to whether it was as a result of a. However, the effectiveness of central bank control of the money supply has been curtailed by factors such as undue interference by governments in the operations of the bank of ghana and a low degree of financial intermediation in the country. The overriding goal of monetary policy in ghana is price stability, although this. You will be redirected to the full text document in the repository in a few seconds, if not click here. Section 3 describes the history and structure of the financial market in. Fiscal constraints on monetary policy for much of the past three decades, fiscal policy remained a major concern for monetary policy in emes. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency unlike fiscal policy, which relies on taxation, government spending, and government borrowing, as tools for a. Today monetary policy is the principle way in which governments influence the. New monetary policy implementation framework main features of the framework a new monetary policy rate mpr replaces the minimum rediscount rate mrr as anchor for monetary policy the operating target is the overnight interbank interest rate the transmission mechanism is largely through the term structure of interest rates. That includes credit, cash, checks, and money market mutual funds. Extending the model by agenor, aizenman, and hoffmaister this paper proposes a framework for how such a decomposition of excess liquidity can be achieved. Aug 05, 2018 china doesnt have a single primary monetary policy tool and instead uses multiple methods to control money supply and interest rates in its economy. To implement monetary policy the monetary authority uses its policy instruments short term interest rates or the monetary base to achieve its desired goals of low inflation and real output close to potential.
Overall, the socioeconomic and political milieu, including the legal framework under which the central bank of nigeria has operated, was found to be the critical factor that influenced the outcome of monetary policy. Pdf the ghanaian economy has been on an upward trajectory over the past three decades, yet a number of challenges bedevil growth, redistribution and. Before independence the governments role was confined mainly to the provision of such basic utilities as water, electricity, railways, roads, and postal services. Inflation targeting and monetary policy in ghana journal of. Jun 20, 2016 some countries on the continent such as nigeria, south africa, ghana and kenya have been reactive about using interest rate increase as a monetary policy tool. Section 2 examines the state of the economy in the postcolonial period. Globally, monetary policies have often involved the use of different measures to regulate the value, supply, and cost of money in tandem with the expected level of economic activity. Ghana interest rate 20022020 data 20212022 forecast. Figure 2 illustrates the evolution of these interest. Economic growth is a sustained increase in a countrys national income or. Tapsoba1 authorized for distribution by steven barnett may 2014 abstract china has been moving to a more market oriented financial system, which has implications for the monetary policy environment. Monetary policy and its effectiveness on economic development. The first six transaction days in 2017 showed a depreciation of the cedi by 0.
Lessons from international experiences prepared by wei liao and sampawende j. Exchange rate regimes throughout the 200 years of central banking have vacillated along a continuum between the two extremes of either fixed exchange rates or the complete neglect of. The index measures the amount of human capital that a child born today can expect to attain by age 18, given the risks of poor health and poor education. From 1960, when the bank of ghana gained full central banking status, the ghanaian authorities have had the chance to pursue an independent monetary policy. Consequently, the conduct of monetary policy in ghana has moved away from the use of direct control measures to indirect, marketoriented tools and recently to inflation targeting. This paper analyzes interest rate passthrough in ghana.
Monetary policy increases liquidity to create economic growth. Fiscal policy, public debt and monetary policy in emerging. The discretionary control of money supply by the monetary authorities in order to achieve the desired economic goal. Lessons from history international monetary policy regimes. The politics of public policy and problems of implementation. The mpc is responsible for formulating and implementing policy in the areas of money, banking and credit to promote and preserve monetary stability. Ghana has a long history of using reserve requirements for both prudential and.
In the specific case of ghana, monetary policies have evolved from the use of direct instruments to the marketbased approach with money supply as the main. The bank of ghana left its benchmark interest rate steady at 14. Today monetary policy is the principle way in which governments influence the macroeconomy. Bordo rutgers university, cambridge university and nber february 2007 prepared for the new palgrave dictionary of economics. Furthermore, countries such as india have been very proactive in having an effective monetary policy tool. Through history, monetary policy has taken many forms, but more recently it has been framed in terms of price stability objectives, often within inflation targeting frameworks. The most important of these forms of money is credit. Progress in the discussion has also been influenced. Ghana s banks have performed poorly in the past, offering but a narrow range and inefficient delivery of financial instruments, being strongly biased in their reach to the urban formal sector and, in particular, to the holding of.
The economy is a mixture of private and public enterprise. From mid2010 to late2012 inflation fell to slightly below 10%, and was very close to the target. The benefits of inflation targeting in the literature, have mainly been mentioned in two areas. Over the same period, poverty rates decreased and other, nonmonetary, welfare indicators improved. However, the effectiveness of central bank control of the money supply has been curtailed by. Economic growth and development economic growth rate is the rate of change in real income or real output. Section 2 examines the state of the economy in the post colonial period. To implement monetary policy the monetary authority uses its policy. Economic and social development before 1957 1874 gold mine in wassa and asante.
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