The Development of the Monetary Policy Frameworks in GhanaThe history of monetary management in Ghana can be categorized into two main distinct phases ie. the period associated with monetary controls and the period under which monetary policy has been allowed to develop in a setting of a liberalized environment. Prior to 1983, when major reforms in the financial structure of the economy began, the Bank of Ghana operated largely a direct controlled system of monetary management. This entailed the reliance on predominantly direct intervention instruments, prominent among which was direct credit control. This involved the imposition of ceilings, both global and sectoral, on individual commercial banks' lending and had to be consistent with national macroeconomic targets like growth, inflation and external balance. With time these arrangements proved to be ineffective and introduced inefficiencies in various sectors of the economy. These weaknesses inherent in the economy at the time necessitated reforms in the conduct of monetary policy. The direct control system of monetary management had to be abandoned with the advent of liberalization of the economy in 1983.
The liberalization process entailed progressive de-regulatory measures, culminating in the institutionalization of a market based system of monetary management in early 1992 and focused largely on the use of indirect and market based instruments in the conduct of its monetary policy. This brought into focus a new dimension to the way monetary management was designed and implemented. The elements of financial programming was introduced and had as its foundation the IMF-POLAK model.
In 2002, the Bank of Ghana Law, Act 2002 was passed by parliament. The Law gave the Bank of Ghana the independence in the discharge of its monetary policy. The independence aspect of the law implied that the Bank could use whatever tools available at its disposal in achieving its primary objective of price stability. The Law gave birth to the Monetary Policy Committee (MPC). Conduct of Monetary Policy vested in the MPC. The law foresaw the Bank of Ghana to be an inflation-targeting central bank. The Monetary Policy Committee since 2002 has been putting in place various institutional, operational as well as accountability and transparency structures to facilitate the effective discharge of its functions.