Dr. Ernest Addison
Currency outside commercial banks grew consecutively in the first half of 2022, despite the policy rate increment in March and May 2022 to constrain market liquidity further and curtail inflation as well as currency pressures.
According to the July 2022 Summary of Economic and Financial Data by the Bank of Ghana, money in circulation grew by 9.8 per cent  in January 2022 to 11.4 per cent in February 2022 and then to 14.3 per cent in March 2022 respectively.
It again went up to 16.3 per cent in April 2022 and then to 18.3 per cent in May 2022 and subsequently 19.1 per cent in June correspondingly.
This is despite the 200 basis points increase in the policy rate to 19 per cent in May 2022. It had earlier been adjusted upward by 250 basis points to 17 per cent in March 2022.
The figures from the Bank of Ghana indicate that money supply shot up successively from January 2022 to June 2022, despite the policy rate adjustment on two occasions.
This appears to be interesting because it came during the period in which prices of goods and services were surging, and the Central Bank had tightened its monetary policy to help tame inflation.
Meanwhile, growth of demand deposits, usually current and call accounts witnessed a significant decline in the first-half of 2022
It grew by 27.6 per cent in January 2022 and subsequently to 27.9 per cent in February 2022, but declined to 17.6 per cent in March 2022. It maintained the 17.6 per cent growth rate in April 2022, but fell to 13.3 per cent in May 2022, and then went down sharply to 8.3 per cent in June 2022.
This is compared with 16.5 per cent, 19.4 per cent, 19.6 per cent and 19.4 per cent in September 2021, October 2021, November 2021 and December 2021 respectively.
Importantly, banks prioritised demand deposits because it comes with virtually no cost. It rather support profitability of the financial institutions.
However, the sharp decline in demand deposits if the trend continues may be a worrying to the financial intermediaries.
On the other hand, growth of Savings and Time Deposits grew substantially to 15.4 per cent in June 2022, from 9.8 per cent in May 2022.
It grew by 8.3 per cent in January 2022 but declined to 6.6 per cent and later rose to 9 per cent and 9.99 per cent in March 2022 and April 2022 respectively.
It’s expected to grow strongly going forward due to the rising interest rates to stimulate and savings.