The Bank of Ghana (BoG) has withdrawn GHS11.28 billion from the financial system through a 14-day bill auction as part of efforts to maintain inflation control and protect the stability of the Ghana cedi.

The move, one of the largest liquidity absorption exercises in recent months, highlights the central bank's commitment to preserving recent gains in inflation reduction and exchange rate stability. However, economists say it also points to deeper structural challenges within the economy.

According to Professor Godfred Bokpin, an economist and finance lecturer at the University of Ghana, the Bank of Ghana is acting to prevent excess cash in the financial system from flowing into the foreign exchange market.

He explained that if the excess liquidity is not absorbed, businesses and investors may use it to purchase dollar-denominated assets, increasing demand for foreign currency and putting pressure on the cedi.

"The economy is not utilising that liquidity effectively. If the Bank of Ghana does not mop it up, it could be used to buy dollar assets, leading to depreciation of the cedi," Prof. Bokpin said.

The latest auction, known as Tender 864 and conducted on June 3, attracted subscriptions worth GHS11.28 billion. Investors accepted interest rates ranging between 10.40% and 11.00%, with the weighted average rate settling at 10.93%.

While the operation demonstrates the central bank's determination to maintain stability, Prof. Bokpin noted that the country's recent economic gains are not yet supported by significant improvements in domestic production or broader economic transformation.

He warned that Ghana may need continued monetary tightening and liquidity management for several years because the foundations of economic stability remain fragile.

"The stability we are seeing is not being driven by structural changes in the economy. We have not addressed the fundamental issues needed to provide long-term support for the cedi," he said.

Ghana has recently enjoyed relatively stable economic conditions. Inflation increased slightly from 3.4% in April to 3.7% in May but remains significantly lower than historical levels. The cedi has also remained relatively stable against major international currencies.

Despite these positive developments, economists believe the stability is heavily dependent on central bank interventions rather than strong growth in production and exports.

Prof. Bokpin also highlighted concerns about investment returns, noting that investors who purchased dollars earlier in the year may have earned higher returns than those who invested in Treasury bills. Such differences could encourage more investors to move funds into foreign currencies whenever excess liquidity becomes available.

Banking consultant Dr Richmond Atuahene agrees that while the Bank of Ghana's strategy is helping to maintain stability, it may also have unintended consequences.

According to him, the liquidity being withdrawn from the financial system could potentially be used to finance businesses, manufacturing activities and other productive sectors that create jobs and support economic growth.

"These operations help control inflation and stabilise the economy, but they also come at a cost. The funds being absorbed could have supported production and manufacturing," Dr Atuahene said.

He added that although liquidity management remains an important monetary policy tool, it cannot replace the need for broader economic reforms aimed at improving productivity and encouraging investment.

Unlike Treasury bills, which are issued to raise funds for government spending, Bank of Ghana bills are used primarily for monetary policy purposes. Their main objective is to absorb excess liquidity and maintain stability in short-term money markets.

The size of the latest auction suggests that policymakers remain concerned about the amount of cash circulating within the banking system despite improvements in inflation.

The operation also supports the Bank of Ghana's recent decision to keep its policy rate unchanged at 14%.

For now, the central bank's approach appears to be achieving its immediate goals. Inflation remains under control, market liquidity is being managed and pressure on the cedi has eased.

However, economists say the long-term solution lies in creating an environment where businesses are encouraged to borrow, invest and expand. Until stronger productive opportunities emerge, the Bank of Ghana may continue to absorb excess funds from the financial system to maintain economic stability.