, before edging up to 9. 5 % in april on the back of pass - through effects of the exchange rate depreciation in the first quarter of the year. 6. while there is full commitment on the part of the central bank to achieve its price stability mandate, we need to recognize that monetary policy will have to act in concert with other economic parameters for full realization of the desired effects.. in this regards, the transmission mechanism through which policy decisions are channelled to the rest of the economy matters. in the context of the transmission mechanism, the role of banks and financial institutions remain important as they are the primary conduit through which monetary policy decisions impact on the final objectives of price stability and growth. 7. monetary policy effectiveness therefore requires an efficient financial market system to ensure that monetary policy actions have the desired impact on the economy. 8. appreciating the role of an efficient financial system, in discussions of monetary policy and market development is very important. under the bank ’ s inflation - targeting framework of monetary policy, short - term interest rates, including the rates at which banks lend to each other are expected to responded to changes in the monetary page | 2 policy rate ( mpr ). this then serves to influence other rates in the financial markets and then finally with impact effects on inflation and output. mp implementation challenges 9. as simple as the transmission process may seem,, there are challenges. key challenges to effective monetary policy and markets development, in our experience, have centred mostly on the following : weak and uncompetitive banking sector • the critical role of banks as the primary conduit for monetary policy suggests that the transmission mechanism is more effective in a competitive banking sector environment. in a weak and uncompetitive banking sector, monetary policy becomes less ineffective because banks become less responsive to changes in monetary policy stance. • to address some of these challenges in the ghanaian economy, the bank of ghana, over the past two years, has taken steps to recapitalise and undertaken significant reforms in the banking sector to strengthen the industry ’ s capacity to effectively intermediate. the implementation of new and wide - ranging regulatory reforms should also serve to provide a good - enough basis for enhancing competition and efficiency in the sector. • fostering banking competition, efficiency and stability therefore remains key policy objectives that the bank of ghana will continue to pursue to facilitate effective monetary policy transmission. high non - performing loans ( npls ) • the prevalence of high non - performing loans

can also limit banks ’ lending capacity and / or interfere with policy transmission and therefore impair the effectiveness of monetary policy. although the banking sector ’ s npl ratio has declined from 23. 5 percent in april 2018 to 18. 9 percent in april 2019, the current ratio still remains very high. with such high npl levels, transmission mechanism of monetary policy to lending rates is weakened and financial intermediation to support economic activity is constrained. page | 3 • to make effective the transmission channel through the npl angle, the bank of ghana is engaging banks to improve their risk management frameworks while the loan loss write - off policy is on - going. we are also strengthening credit conditions through the collateral registry and the credit referencing bureaus. market development to ease transmission mechanism • the need to broaden the scope of government financing needs without crowding out the private sector through the development of a liquid bond market is critical to effectively help manage debt without repercussions on macroeconomic stability. an efficient and liquid bond market provides some scope for effective transmission mechanism for monetary policy. • with sound fiscal and monetary policies, improved regulatory environment and improved payments and settlement infrastructure, government has lengthened the yield curve to 15years on the domestic money market. • government re - profiling has supported the shift towards more medium - to - long term bonds to reduce re - financing risks, driving down interest rates at the short - end of the market and has helped correct the yield curve. external vulnerabilities • exchange rate movements are relatively important for a small open - economy with a flexible exchange rate mechanism, like ghana. exchange rate dynamics have significant effects on the ultimate goal of price stability and hence on monetary policy decisions. • the impact effects of external vulnerabilities on the domestic economy are channelled through three main sources – first, with a commodity - dependent export base, the economy is highly vulnerable to negative terms of trade shocks. second, the increased levels of outflows in the service and income accounts due to the dividends and profit repatriation by large multinational companies in the energy, mining and telecoms sectors pose significant risks to reserves and in the process constrains out ability to effectively deal with shocks. third, the increased nonpage | 4 resident participation in the domestic bond market has exposed the economy to vulnerabilities stemming from changes in sentiments of these investors. these sources of vulnerabilities, when they materialize, can distort external sector conditions