reaction was to accommodate the shocks by providing subsidies on oil products, leading to large budget deficits partially financed by the central bank. clearly these developments signaled an economy in distress, underlying the urgency of implementing policies to reverse the trend and restore stability. 6. of the economic challenges, the continuing high inflation was particularly worrisome due to its impact on fixed income earners, savers, investors and the poor. rising inflation creates uncertainty in long - term decision - making, delaying investment decisions and distorting business plans. therefore inflation has fundamental implications for long - term employment and growth. 7. given the adverse economic conditions just described, the government had to take decisions to improve the business environment. as i just stated with respect to inflation, business decisions are taken with a higher degree of confidence and certainty under stable economic conditions. consequently, monetary policy had to be decisive in reducing uncertainty and turning the economy around towards stability. 8. mr. chairman, the primary mandate of the bank of ghana is to maintain price stability. to achieve price stability the bank has to manage the supply of money. in classical theory, the control of the money supply is the basis of monetary policy ; the process through which the monetary authority controls the cost of money or interest rates and supply of credit, thereby influencing inflation, exchange rates and employment levels. 9. interest rate adjustments influence inflation. rising interest rates reduces consumption and investment thereby dampening aggregate demand. a low interest rate environment results in the opposite effect, raising consumption and investment ; therefore aggregate demand. 10. now let me turn my attention to the role of fiscal policy on the effectiveness of monetary policy. to a large extent, the achievement of a stable interest rate and credit environment depends on the size of government borrowing ( the public sector borrowing requirements or psbr ) and how it is financed. the sources for financing government borrowing within the domestic economy are the public and the banking system ( whether or not including the central bank ). when financed such government borrowing “ crowds out ” the private sector from accessing capital. it is often said that for “ every cedi government borrows, the private sector has one cedi less ”. but more importantly, the effect of excessive borrowing is to raise the cost of money. 11. mr. chairman, the interest rate policy setting process at the bank of ghana is very extensive. the objective is to gain a comprehensive understanding of the state of the economy. 12. to do this, we assess developments in the external sector

end period rate of 11. 5 percent by end - 2015. as the bank of ghana maintains a tight policy stance to achieve the inflation target, we anticipate that our efforts would be fully complemented by yours in responding appropriately to the policy signals. bis central bankers ’ speeches treasury initiatives allow me now, mr. chairman, to share some thoughts on policies and measures to be implemented from the treasury perspective in the ensuing year. in 2015, our preoccupation will be to ensure that a vibrant foreign exchange market is well established to facilitate a well - referenced exchange rate determination. to this end, the reuters trading – the information and dealing tracking platform that has been established – will be enhanced further to accommodate all significant foreign exchange transactions to help in determining the reference exchange rate for the market. the strict cooperation of all authorized dealer banks and traders in meeting reporting requirements in a timely manner is expected to ensure that the foreign exchange market is well - deepened and anchored. the bank is also considering other measures to help deepen liquidity of the foreign exchange market. some of the surrender receipts that currently flow to the bank of ghana are likely to be gradually redirected to the authorized dealer banks. this measure will only be introduced after full consultations with the banks to minimize any adverse effects. another area of policy focus of the bank in the coming year relates to the development of appropriate monetary instruments and tools to make liquidity management more effective. to this end, the bank will revise its monetary operations by introducing a 2 - week fixed rate bog - bill linked to the monetary policy rate and 56 - day bog - bill issued as a complementary sterilization instrument with the same features as the existing 56 - day instrument. as usual, we expect your maximum cooperation in patronizing these instruments and also getting all the other policy measures carried through. payments systems initiatives on payments systems – mr. chairman, as you are aware – the bank launched a payment system strategy in august this year to drive the development of the country ’ s payments system over the next seven years. the strategy comprises initiatives such as the divestiture of ghipss, instant pay facility, and electronic money issuers / agent guidelines. it is the bank ’ s intention to allow banks to be shareholders of ghipss to enable them participate more meaningfully in the running of the institution and partner the central bank better in developing the payments system. on instant pay facility, mr. chairman, at a meeting with heads of banks early this