Dr Ernest Addison, Governor of the Bank of Ghana, has described the country’s rising inflation rate of nearly 24% as a complicated issue that will be dealt with decisively in the ongoing Monetary Policy Committee (MPC) meeting, which began today, May 18, 2022.
In most cases, the Policy Rate – the interest rate at which commercial banks borrow from the Bank of Ghana – is higher than the inflation rate, but not this time.
The Governor told Bloomberg that rising inflation has surprised his team, but that he will make a major decision to address the issue.
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It’s an issue which, in a sense, is baffling to all of us. A year ago, inflation in Ghana was near single digits, particularly at 7.5 per cent, and then we find ourselves a year later in high double digits. It’s a very complicated environment. As you yourself are aware, we have come out of COVID-19. But Ghana, fortunately, was able to weather the impact of COVD well without recording high interest rates.
“And is seem as if the economy has pick up significantly with a positive growth rate of 5.4 per cent. At the Central Bank, we have anticipated this. In November last year, we raised the policy rate by 100 basis points (2.0 per cent), and then we were rather surprised by the inflation rate which came out later on. After that in February (2022) in particular which triggered the 250 basis points (2.5 per cent) adjustment in the policy rate,” he explained.
Continuing, Dr Addison said “this week, the MPC will be meeting, I do not want to preempt what the Committee will decide but I think is a very complicated issue. As we said inflation is nearly 24 per cent, we need to take a position on what to do with the current policy rate at 17 per cent”.
On stabilising the economy, the Governor said his outfit has had limited set of instruments to manage liquidity and interest rate.
However, he believes, it has done well to support government to manage the situation.
“The role of the Central Bank in stabilising has been very clear. I mean we have limited set of instrument trying to manage liquidity and trying to manage interest rates; and that is what we have done in the last year or so.”
As you heard, we have to be conscious of the impact of both external and internal developments on the exchange rate. And if the market gets tighter and we see capital beginning to flow out, obviously, interest rate instruments will have to do part of the work, “he added. – Myjoyonline.com
