Why high interest rates make Central Banks' Open Market Operations costly – BoG explains

The Bank of Ghana (BoG) has strongly denied allegations that it is intentionally keeping policy rates high to generate profit.

This denial comes after reports suggested that the central bank has been increasing policy rates for financial gain.

But the BoG says it remains unwavering committed to implementing sound monetary policies aimed at achieving stable inflation in accordance with its medium-term goals.

Director of Communications at BoG, Mr. Bernard Otabil emphasized the bank’s dedication to maintaining inflation stability and promoting exchange rate stability within a floating currency regime.

"Maintaining low and stable inflation is essential for promoting exchange rate stability under a floating currency regime, which is crucial. The BoG is dedicated to implementing sound monetary policies aimed at achieving stable inflation in line with its medium-term objectives," he noted.

Mr. Otabil stressed that the central bank's main focus is on ensuring price stability and improving the welfare of the Ghanaian population.

He also dismissed the idea that central banks worldwide raise policy rates for profit, explaining that such actions are detrimental to central bank operations.

"Anyone making such a claim may not fully grasp central banking because high interest rates are actually harmful to central bank operations. High interest rates increase the cost of our open market operations and result in significant losses," he explained.

Open Market Operations (OMOs) involve the buying and selling of securities in the open market by a central bank. They are a critical tool used by the Central Bank in the implementation of monetary policy.

EAN/MA

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