Accra: The Bank of Ghana (BoG) has proactively addressed the issue of excess liquidity within the banking sector by implementing several strategic measures aimed at stabilizing the financial system and encouraging economic growth through expanded lending to the productive sectors.
According to Ghana Web, sustained deposit mobilization has been a key factor in strengthening banks' funding bases as macroeconomic stability has improved. Households and businesses have shown increased confidence in the financial system, retaining larger balances within the banking sector due to lower inflation. The easing cycle initiated by the BoG has also played a significant role by reducing funding costs across the financial system. This reduction has filtered through into lower interbank rates and average lending rates, which in turn has increased the amount of loanable funds available to banks while simultaneously stimulating credit demand.
Government domestic borrowing requirements have become more predictable, reducing uncertainty in liquidity planning for banks. As a result, the banking system has experienced abundant liquidity. The BoG acknowledged during its May Monetary Policy Committee meeting that interbank rates had remained close to the lower boundary of the policy corridor, a traditional sign of excess liquidity within the banking system. Despite this, the Bank is consciously avoiding excessive liquidity withdrawal to encourage commercial banks to expand lending to the productive sectors of the economy.
Monetary policy statements throughout 2026 have consistently highlighted the improvement in real private sector credit growth. As inflation declined sharply while nominal lending rates eased more gradually, real borrowing costs became considerably more favorable, encouraging stronger loan demand from businesses and households. Credit to Ghana's private sector expanded significantly in the first half of 2026, with nominal private-sector credit growing by 41.20 percent year-on-year in June.
The BoG's July 2026 Summary of Economic and Financial Data indicated that nominal private-sector credit reached GHS119.60 billion at the end of June 2026, up from GHc84.80 billion in the corresponding period of 2025. Real private-sector credit also showed a substantial increase, measured using the Ghana Statistical Service's consumer price index, rising to GHS44.20 billion from GHS32.90 billion a year earlier.
The growth in private-sector credit has been accompanied by a considerable reduction in borrowing costs. Ghana's average lending rate declined to 15.64 percent in June 2026 from 27.00 percent a year earlier, while the Ghana Reference Rate fell to 10.02 percent from 23.80 percent.
Commercial banks are deploying their expanding liquidity into three principal assets: loans to the private sector, Government of Ghana securities, and Bank of Ghana bills. BoG bills are particularly attractive to banks as they carry no credit risk, offer predictable returns, satisfy liquidity management requirements, and can be readily traded within the interbank market. The recent auctions provided banks with opportunities to invest temporary surplus funds without committing to longer-term lending decisions.
The BoG's strategy involves sterilizing only the excess liquidity rather than the entire increase in banking system funds. This approach ensures that commercial bank lending continues to expand, even as BoG bill issuance intensifies. BoG Governor Dr. Johnson Pandit Asiama identified liquidity conditions and inflation risks as central considerations for monetary policy. The termination of the Bank's pre-financing arrangements for domestic gold purchases from July 1 further complements the sterilization achieved through BoG bills.
Looking ahead, the effectiveness of this balancing act will largely determine whether Ghana can sustain its recent macroeconomic gains.