From GH¢4.8 billion in October, last year, bills and notes issued by the central bank for treasury operation purposes rose to GH¢93.3 billion in October this year, bringing to the fore the intensity of the bank's OMO in 2016.

This means that unlike last year, when an average of GH¢48 million of BoG bills and notes were issued for treasury operation purposes per a month over the 10-month period, an average of GH¢9.3 billion of them were issued per month within the same period this year.

It also means that average weekly issues for OMO between January and October, this year, were GH¢2.2 billion compared to the same period next year, when it averaged GH¢11.08 million.

Data from the Central Securities Depository (Gh) Limited showed that June recorded the biggest monthly issue of GH¢12.7 billion.

In January, issued bills and notes from the central bank totalid GH¢5.7 billion, the lowest of the amount issued each of the past 10 months.

Implications

Treasury operations, which involve the sale and purchase of central bank bills and notes, considered paper, are used to mop up excess liquidity in the system to help stabilise inflation.

With a mandate to help stabilise inflation, the BoG has, over the years, resorted to its benchmark rate, the Policy Rate, and OMO as key measures to achieving its Inflation Targeting (IT) framework.

While the policy rate is normally adjusted in response to inflationary pressures, the purchase or sale of bills is influenced by the level of excess liquidity in the system.

A former deputy Governor of the BoG, Mr Emmanuel Asiedu-Mante, told the GRAPHIC BUSINESS on November 29 that the jump in treasury operations between January and October, this year, meant that the bank was aiming at reducing the amount of cash in circulation.

"It means that the money in circulation was more than necessary and it could trigger inflation. In order not to allow the excess money to create an inflationary economic environment, they float the BoG bills to withdraw the money out of circulation," he said.

Impact on economy

The adjustments of the Policy Rate is one of BoG's functions under the IT framework, which many economists have criticised for doing little to stabilise inflation but rather pushing up the cost of credit.

While the adjustments in the rate help to signal the direction of inflation in the short term, a combined uptick in the rate and OMO will normally push interest rates on commercial loans up.

This is because as sale of BoG bills increases and the policy rate is adjusted upwards, benchmark rates such as Treasury bill rates will follow suit and that will reflect in the pricing of credit for commercial purposes.

Mr Asiedu-Mante, who retired 10 years ago, said an increase in the treasury operations as witnessed in the first 10 months of the year meant that BoG was trying to avoid increasing its policy rate.

"If they do not mop up the excess liquidity, there will be more inflation and the policy rate will go up. If they had not mopped up the excess liquidity, inflation would have picked up and then they would have been compelled to raise the policy rate," he said.

After rising to 26 per cent in November, 2015, the Policy Rate was left unchanged until November 25, when it was dropped by 50 basis points to 25.5 per cent.

Within the past 10 months, inflation remained high, starting the year at 19 per cent in January before rising to 19.2 per cent in March.

It then stayed above 18 per cent briefly before easing to 16.7 per cent in June and 15.8 per cent in October. The slowdown was largely due to the minimal rate of depreciation of the cedi against its major trading partners this year compared to previous years.

Unlike last year, when the currency lost about 15.5 per cent of its value to the US Dollar in the first 10 months of the year, it depreciated by 4.3 per cent in the period this year.