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BoG shocked at rate of inflation rise…but boast of solid economy

Adnan Adams Mohammed

The Bank of Ghana has expressed shock at skyrocketing rise in the rate of inflation in the country.

The central bank is however confident that the Monetary Policy Committee, which is meeting to review developments in the economy, will take a decision to see the decline of the rate of growth.  

The MPC need to decide on the current policy rate, which stands at 17%. The policy rate, which influences interest rates for individuals and businesses, is also used as a tool to curb inflation in the country.

“It’s an issue, which in a sense is baffling for all of us. A year ago inflation in Ghana was 7%% and now we find ourselves with high double-digit inflation. It’s a very complicated environment”, the Governor of the Bank of Ghana, Dr. Ernest Addison, said in an interview, last week.  “The MPC is meeting this week and I do not want to pre-empt what the committee will decide, but I think it’s a very complicated situation. We do need to take a position on what to do with the policy rate, which stands at 17%.”

Data from the Ghana Statistical Service shows that the continuous surge in transport and food prices among others, across the country, has pushed the national year-on-year inflation for April 2022 to 23.6 %, which is over 13 percentage points higher than the upper band of government’s inflation target for 2022, which is 10 %.

Under the inflation targeting regime being operated by the Central Bank, policy makers generally prefer that the policy rate stays ahead of headline inflation. But for the first time in a long while, the key rate is trailing headline inflation by about 700 basis points, leaving the Central Bank in a difficult position.

Meanwhile, Dr. Addison has assured that he was confident the rate of inflation had peaked and should begin declining for the rest of the year.

“Government and the Central Bank are very much aware of the problem. We’ve had very major decisions on fiscal consolidation. Expenditures have been cut by 20% among other things. We expect that these measures will serve as an anchor to inflation. A lot of the shocks that we are seeing now tend to be supply-side in nature, but we think the worst has gone through the system, and we expect that inflation will be tapering off for the rest of the year.”

The Governor further noted that, the Ghanaian economy is growing strongly despite the threat of rising inflation and the recent sharp volatility of the cedi. 

According to him, data secured by his outfit so far indicates that the economy continues to rebound, irrespective of the challenges. He said, the real sector of the economy has been resilient despite the impact of COVID-19 pandemic.

“The Ghanaian situation in a sense also reflects what happened in 2020 where the government took a very expansionary stance on policy. Therefore there were many interventions that was put into place in order to protect lives and livelihoods.”

“The impact of that was real sector being more resilient than we see in other places. As I said, we are beginning to see a pick-up in growth in 2021”, Dr. Addison emphasised.”

Indeed, sectors such as Information, Communications and Technology; Tourism and Hospitality; Manufacturing have bounced back, registering strong growth rates.

“Some of the data that has come in 2022 does not suggest that we are slowing down”, the Governor noted.

“I believe, if we were to choose between growth and inflation, the policy priority should be managing the pace at which prices are increasing”, he added.

Economy expanded by 5.4% in 2021 – GSS

Ghana’s economy expanded by 5.4% in 2021, far higher than the 0.4% recorded in the year 2020, a period that COVID-19 pandemic had severely hit the global economy.  

Without oil, the economy recorded a Gross Domestic Product (GDP) growth rate of 6.9%

According to provisional estimate by the Ghana Statistical Service, only 10 countries in Africa recorded growth rates higher than that of Ghana. They included Cote d’ lvoire and Uganda.

The strong growth rate was driven by the Services sector, particularly the Information, Communication and Technology (33.1%) and the Agriculture sector, such as Fishing (13.4%).

The Services sector recorded the highest GDP growth rate of 9.4% in 2021.

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