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BoG’s new CRR directive injects $750m vital FX liquidity amidst cedi’s year-end strain

According to insights from GCB Capital Research, the BoG’s new Cash Reserve Ratio (CRR) directive effective November 30, 2023, will make available some $750 million in much-needed foreign exchange (FX) liquidity into the market.

As the Cedi contends with mild pressure leading up to the festive yuletide season, analysts predict a tempered relief with anticipated inflows from the International Monetary Fund (IMF) and the impending Cocoa Loan Syndication.

The CRR adjustment to 15% coupled with the continous pause in the monetary policy rate, is expected to foster a more favorable environment on the interbank market.

The new Cash Reserve Ratio and the consolidation of currency denomination for reserves held with the Bank of Ghana is poised to fortify the nation’s monetary landscape and potentially curb the cedi’s depreciation.

Drawing from deposit figures at the end of October 2023, GCB Capital Research estimates that the new CRR directive is set to siphon approximately GH¢11 billion in Cedi liquidity from the interbank market.

Simultaneously, it is projected to infuse around $750 million, a move designed to enhance liquidity conditions in the FX market, particularly during the festive season.
As the curtain falls on the year, the timing of this liquidity injection is crucial. Analysts suggest that this strategic move could act as a buffer against rapid currency depreciation, offering a measured respite in the face of economic challenges.

In a significant move, the Central Bank announced the unification of the Cash Reserve Ratio for both foreign currency-denominated deposits and domestic currency deposits held by banks.

The decision to unify currency holdings, according to the BoG Governor, aims to tackle excess structural liquidity conditions prevalent in the market, adding that this strategic measure is expected to provide an additional impetus to the ongoing disinflation process.

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