BANKING AND CURRENCY
Control of money-supply growth and liquidity management have
been among the ERP's most difficult tasks, and expansion has
generally exceeded targets for most of the 1980s. The initial phase
of monetary policy (1983-86) focused on reducing government
borrowing from the domestic banking system and on using
quantitative controls via credit ceilings. Although these succeeded
in reducing domestic credit growth, larger than expected foreign
earnings and the money market's inability to process them
efficiently contributed to a rapid expansion in the broad money
supply until the late 1980s.
The subsequent introduction of more dynamic monetary policies
in 1989 involved a phase-in of indirect controls and market-based
policy instruments. A further series of measures was introduced in
1990 to strengthen the responsiveness of interest rates to changes
in liquidity conditions. There followed a phased increase in the
Bank of Ghana's rediscount rate from 26 percent to 35 percent by
mid-1991, the introduction of three- and five-year instruments
later that year, and a widening of access to Bank of Ghana
financial instruments in favor of the non-bank financial sector.
The policies were quite effective. Money supply growth was brought
convincingly under control in 1990 and 1991; however, a decline in
interest rates and in monetary control, compounded by salary
increases in the public sector, prompted monetary growth in 1992.
In January 1994, the Bank of Ghana relaxed its monetary policy.
As a result, the government's 91-day treasury bill discount rate
was lowered five percentage points to 27 percent. The interest rate
equivalent of the discount rate fell from 34.78 percent to 28.95
percent. Savings deposit rates also fell in December 1993 from
17.5-22 percent to 15-22 percent. The wider range suggests
competition for funds in the banking market. The range for longerterm money (two-year) declined from 22-32 percent to 25.2-28
Data as of November 1994