Increasing monetary policy rate won’t reduce Ghana’s inflation – Economist advises

Chartered Economist, Emmanuel Amoah-Darkwah has asserted that the recent increase in Ghana’s monetary policy rate by the Bank of Ghana (BoG) would not resolve the high rate of inflation affecting the country’s economy.

Beginning this week, the monetary policy rate was raised by 250 basis points, from 24.5 per cent to 27 per cent by the Bank of Ghana’s Monetary Policy Committee (MPC).

The Committee cited a variety of factors, including increased economic and policy uncertainty, inflationary pressures, and a decline in the value of the Ghana cedi relative to the US dollar, as justification for the increase.

However, Mr. Amoah-Darkwah in an interview on the Happy Morning Show with Sefah Danquah argued that the increase in Ghana’s monetary rate will adversely affect the economy than stabilize it.

He highlighted that though the increase in monetary policy rate is a conventional practice across the world, Ghana’s case requires a different approach.

“The reason is that if you look at our inflation basket, the causes of inflation are more of a cost-push than a demand-pull. So if you increase the monetary policy rate, you expect the inflation rate to drop. But in the past 12 months, about 14% has increased to 27%, and why is inflation at 40.4%? Why is the producer price index also 65.2%? So it tells you that the problem is bigger than the demand pulls rather than the cost-push. So what do we do to arrest the various component of what is contributing to our inflation rate,” he shared.

The economist earlier explained that “Central banks across the world what they have been doing to catch up inflation is to increase their monetary policy rate. The idea is that there is excess liquidity in the economy and for the current inflation, it is a demand pool. There is a lot of money in the system chasing fewer goods, which has allowed a high rate of inflation. So to arrest and bring down inflation they are increasing monetary policy rate.”

He continued, “The current increase in our monetary rate will only allow our lending rate to shoot up because if you look at our lending rate we use what is called the Ghana Reference rate and that is what we use as competition for our lending rate. One key component is the monetary policy rate then we look at the treasury bill rate. So if our monetary policy rate goes up it will affect the Ghana Reference Rate which in the variable will also affect our lending rate on the market so I think the fiscal side should respond either than just using the monetary policy rate to solve this high inflation we’re facing.”