Dr Ernest Addison, the Governor of the Bank of Ghana (BoG) has described Ghana’s current inflation rate as baffling. Speaking in a virtual interview Monday before the Bloomberg Invest: Focus on Africa conference, Dr Addison said, “It’s an issue which in a sense is baffling to all of us. A year ago, inflation in Ghana was near single digit, particularly we were at 7.5% and then we find ourselves a year later in high double digits.”
“It’s a very complicated environment, as you are aware we have come out of COVID-19. But Ghana, fortunately, was able to weather the impact of COVID well without recording high-interest rates,” he added.
“A lot of the shocks that we are seeing now tend to be supply-side in nature,” he said.
“We are trying to manage liquidity very tightly to ensure that we don’t have excess liquidity fueling further inflation and an exchange-rate depreciation…”
“If markets get tighter and we see capital beginning to exit, the interest-rate instrument will have to do part of the work.”
He added, “We expect that inflation will be tapering off for the rest of the year.”
Increase policy rate
The Institute of Economic Affairs (IEA) has urged the Bank of Ghana (BoG) to increase the policy rate by another 200 basis points to 19.0%.
According to the IEA, this will help narrow the gap with inflation and “also ease to some extent the risk of foreign currency outflows.”
The IEA in a statement said, “the adjustment will also provide some assurance to the markets that the BoG is committed to addressing the resurging inflation. Anything less than this may be interpreted as a weak response, which may be concerning to the markets.”
“The BoG must buttress its decision with an effective communication strategy to make its intentions clear so that the Bank can rally the markets behind the decision,” the statement added.
“It has to be said that the above discussion is made in the context of the IT framework that BoG signed on to since 2007.”