Theo Acheampong, a petroleum economist, has argued that we need to understand the root causes of the recent high inflation and sharp exchange rate depreciation in order to provide the necessary solutions.
In response to the Bank of Ghana’s decision to raise the monetary policy rate to 22%, the economist pointed out that the central bank’s inflation targeting regime is ineffective.
According to him, we must thoroughly comprehend the underlying causes of the recent high inflation and sharp exchange rate depreciation.
Per his reading of the situation, he analysed that we have more cost-push inflation and less demand-pull inflation (i.e. increase in aggregate demand by the four key sectors of the economy, namely: households, government, businesses and foreign players).
To him, “the issues with Ghana’s economy and the cedi are beyond the central bank.
Unfortunately, the Bank of Ghana hiking up the policy rate by another 3% seems to be the only policy tool available at its disposal. It remains to be seen if it’ll work, although I’m personally not convinced.
He went on to state that the move by the BoG will make the cost of credit more expensive for businesses and Ghanaians in general.
“The unintended consequence of such a move is making the cost of credit more expensive for households and businesses in an already liquidity-constrained economy. Fundamentally, there must be a commensurate/coordinated fiscal policy response by the central government.
However, that hasn’t happened in the recent past (mid-year budget projections were largely seen by market players as not being credible) and most likely not happening anytime soon, I reckon. The $750mm AfriExim loan, expected to hit the government’s account this week and upcoming cocoa syndicated loans, may help stem the cedis sharp depreciation with some dollar inflows.
However, this is only a temporary measure. The problem with the economy is not monetary but a fiscal one (i.e. reckless spending and little value for money). And oh, by the way, why are the voting decisions of the members of the Monetary Policy Committee (MPC) not made public?”
By: Rashid Obodai Provencal/ Rainbowradioonline.com/Ghana