BoG waters down fears of election-linked inflation

The Monetary Policy Committee (MPC) of the central bank has said it is undisturbed by perceived inflationary pressures which the Statistical Service said could result from traders hiking prices ahead of the December polls.

“We haven’t seen any indication that the election is a real concern. Our surveys and even consumers tell us the economy is gradually picking up,” BoG Governor, Dr. Abdul Nashiru Issahaku, said in reaction to a question posed by the B&FT at the MPC meeting on Monday where it maintained the policy rate 26percent.

“Businesses, the financial sector and also consumers, are all expecting inflation to come down, so that tells us the 2016 election is not a big issue as far as the economy is concerned.”

The Ghana Statistical Service announced last week that August’s inflation, spurred on by non-food inflation, reached 16.9 percent from the 16.7 percent recorded in July.

The rise, the GSS said, could have resulted from traders hiking prices because they fear the local currency would struggle against the US dollar ahead of the polls.

The BoG Governor told the media, however, that the 0.2percent marginal rise does not distort the bank’s medium-term inflation outlook.

In fact, he said owing to a tight monetary policy regime, among other factors, the bank is confident its medium-term inflation target of 8±2 is on course to be met in the second quarter of next year, instead of third quarter it had adjusted the target to.

“The Committee noted the moderation in headline inflation since the July meeting on the back of continued cedi stability, easing inflation pressures, and tight credit conditions which implicitly reflect continued monetary policy tightness.

This, together with projections of tighter fiscal consolidation and lower growth, contributed to the inward shift in the forecast horizon from the third quarter to the second quarter of 2017. Going forward, the continued monetary and fiscal policy tightness, together with stability in the foreign exchange market should support the disinflation process,” he said.

The central bank approach, some analysts suspect, is its own ingenuity of curing speculation regarding consumer prices that could also have a significant impact on exchange rate as well.

The Ghana Statistical Service (GSS) had hinted in the announcement of August’s inflation that importers are already beginning to hike prices to provide cover for any possible losses in the exchange rate in the run up to the polls.

But the central bank, as expected, moved in to calm importers and assure them of price stability in the remainder of the year, citing its own monetary policy tightening, expected donor inflows, proceeds from the Eurobond and the cocoa syndicated loan as reasons for all to be optimistic.

As the economy enters the fourth quarter, the local currency has remained fairly stable, depreciating by just about 4 percent since the turn of the year as against a 16 percent decline within the same period last year.

Nevertheless, the governor pointed out that upside risks to its inflation outlook still exist, and could come in the form of unanticipated shocks, especially with regards to the intermittent upward adjustments in petroleum and utility prices, and their second round effects.