Ghana's current inflation rate, according to Governor Ernest Addison of the Bank of Ghana (BoG), is "baffling." "It's a problem that in a way is puzzling to all of us," Dr. Addison said in a virtual interview Monday before the Bloomberg Invest: Focus on Africa conference. Inflation in Ghana was near single digits a year ago, especially in the 7.5 percent range, and now it's in the upper double digits."
"As you know, we just got out of COVID-19, so it's a really complex atmosphere." However, Ghana was lucky in that it was able to weather the effects of COVID without experiencing excessive interest rates," he noted.
"A lot of the current shocks are supply-side in character," says the author. "We're trying to manage liquidity very carefully to avoid having excess liquidity driving additional inflation and devaluation of the currency..."
"If markets tighten and capital starts to leave, the interest-rate instrument will have to do some of the heavy liftings." "We expect inflation to moderate for the remainder of the year," he continued.
Raise the policy rate
The Institute of Economic Affairs (IEA) has called for the Bank of Ghana (BoG) to raise its policy rate by 200 basis points to 19.0 percent. According to the IEA, this will help close the inflation gap and "reduce the danger of foreign currency outflows to some extent."
"The adjustment will also give some comfort to the markets that the BoG is dedicated to addressing the resurging inflation," the IEA said in a statement. Anything less may be viewed as a lackluster reaction, which could worry the markets."
"The Bank of England must support its decision with an effective communication strategy to make its objectives clear so that the markets rally behind it," the statement continued.
"It should be noted that the conversation above takes place within the context of the IT framework that BoG has been a part of since 2007."
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