Currency in circulation which determines the level of liquidity in an economy has been falling, raising some concerns that the economy is facing some liquidity challenge.

According to the Bank of Ghana’s Summary of Financial and Economic Data, growth of currency outside banks grew by 18.3% in August 2021.

This is lower than 38%, 31.9%, 25.2% and 20% growth in April 2021, May 2021, June 2021 and July 2021 respectively.

In actual fact, growth of currency outside the banking system has fallen consistently from the beginning of this year (January 2021: 46.3%) till August 2021.

This indicates some level of liquidity challenge in the economy in the second quarter of this year, running into some part of the third quarter.

Indeed, the 2021 Budget was pivotal towards fiscal consolidation, a move the International Monterey Fund described as an important step in the right direction but a difficult one in a pandemic.

“The 2021 budget’s recent policy pivot towards fiscal consolidation is an important step in the right direction and a difficult one in a pandemic. Fiscal consolidation should be deepened and anchored around debt and debt service reduction to create space for social, health, and development spending”, the IMF said in its Article IV Consultation.

Also, growth in Savings and Time deposits fell to 19.3% in August 2021, from 24.3% in July 2021.

The growth in Savings and Time deposits had been high in the first four months of this year, but has since retreated.

For demand deposits, largely call and current accounts, the growth has also fallen from 36% in January 2021 to 25.2% in August 2021.

However, between January 2021 and August 2021, the growth in the demand deposits had fluctuated. In February 2021, March 2021, April 2021, May 2021, June 2021 and July 2021, the growth of the demand deposits were 28.0%, 28.3%, 22.0%, 20.5%, 22.1% and 20.6% respectively.

BoG maintains Policy Rate at 13.5%

The Monetary Policy Committee of Bank of Ghana maintained its key lending rate to commercial Banks at 13.50%, citing risks to inflation and growth outlook, triggered by challenges to the fiscal economy as key reasons.

Addressing the press, Governor of the Bank of Ghana, Dr. Ernest Addison, said it was necessary to keep the policy rate unchanged due to developments in both the local and global economies.

“The Committee noted that the recovery in global economic activity has continued, although unevenly spread across regions and countries. But, uncertainties regarding the continued spread of the Delta variant of the COVID-19 virus, variations in policy stimulus programmes, and low access to vaccines in emerging market and frontier economies may weaken near-term growth prospects.”

On the domestic front, the Governor stated that the Committee was of the view that growth continues to recover from the impact of the pandemic as high frequency economic indicators point to continued recovery in economic activity, even though below pre-pandemic levels.

“Although consumer confidence picked up, weakening business sentiments, stemming from supply disruptions, is adversely impacting input costs, driving down short-term company prospects. While credit to the private sector saw a marginal pickup, the trends remain below expectations largely on account of pandemic-related risk aversion. The COVID-19 related macro-prudential measures, put in place by the Bank of Ghana, will be maintained for the time being to support full recovery in economic activity”, he stressed.