BOG Signals Firm Commitment to Dynamic CRR Reforms
The Bank of Ghana has reaffirmed its commitment to reforming the dynamic cash reserve ratio (CRR) framework, signalling that the central bank intends to sustain credit expansion while maintaining firm control over liquidity conditions in the banking sector.
Addressing journalists after the 128th Monetary Policy Committee (MPC) meeting in January, Governor Dr. Johnson Pandit Asiama underscored the policy intent behind the dynamic CRR regime, which was designed to incentivise banks to lend more to the private sector instead of warehousing excess liquidity or concentrating investments in government securities.
“The dynamic cash reserve ratio was introduced some time ago. The objectives that were announced at the time were to support lending by the banks… we are still committed to those reforms,” Asiama said.
The Governor explained that the central bank has commenced a review of the framework and has already introduced adjustments to ensure that reserve requirements correspond with the currency composition of deposits. He stressed, however, that any further changes would be calibrated to avoid undermining liquidity management.
“Going forward, we will see how to get on with that reform without compromising on our liquidity management efforts. The good part is that we have seen a recovery in private sector credit… that is the way to go,” he said.
The dynamic CRR system, introduced several years ago, makes reserve requirements responsive to banks’ lending behaviour. Under the framework, banks with loan-to-deposit ratios (LDRs) below 40 per cent were required to hold reserves of up to 25 per cent, while institutions with LDRs above 55 per cent benefited from lower reserve requirements, typically around 15 per cent. The tiered structure was intended to encourage stronger credit intermediation.
At its May 2025 MPC meeting, the Bank refined the regime to address emerging balance sheet vulnerabilities. Banks are now required to maintain reserves in the same currency as the deposits they hold, cedi-denominated deposits backed by cedi reserves, and foreign currency deposits matched with foreign currency reserves. The measure was introduced to mitigate currency mismatch risks and reinforce the effectiveness of monetary policy transmission, particularly in an environment characterised by exchange rate volatility.
Beyond its incentive structure, the dynamic CRR has also functioned as a critical liquidity absorption tool, enabling the central bank to manage excess system liquidity while steering banks towards greater private sector lending.
Asiama further indicated that even in the event that reserve requirements are eventually phased out, the broader objective of deepening credit to the private sector which underpinned the introduction of the dynamic CRR, would remain central to policy.
The Bank’s renewed commitment to refining the framework suggests a deliberate balancing act: sustaining credit growth to support economic activity, while safeguarding financial stability through prudent liquidity management.
