IMF advises BoG, other Central Banks to stay on monetary policy tightening course
The IMF has urged Bank of Ghana (BoG) and Central Banks around the globe to continue on the path of monetary policy tightening despite the economic pain it will cause.
According to the Fund, the BoG and other Central Banks need to keep “moving forcefully to get inflation back under control.”
“Rapid and synchronized interest-rate increases are squeezing businesses and consumers around the world, and there is a risk that policy makers will go too far and cause an “unnecessarily harsh recession,” said Pierre-Olivier Gourinchas, the IMF’s economic counsellor and head of research.
But there is also a risk that central banks won’t do enough to combat soaring prices and will allow high inflation to become entrenched in consumer and business psychology, as happened in the 1970s.
“The costs of these policy mistakes are not symmetric. Misjudging yet again the stubborn persistence of inflation could prove much more detrimental to future macroeconomic stability by gravely undermining the hard-won credibility of central banks,” Mr Gourinchas said.
This advice contrasts with a recent report by the United Nations Conference on Trade and Development, which said central banks are driving the world economy toward a painful recession and called on policy makers to stop raising interest rates. However, it echoes the hawkish rhetoric coming from many central banks themselves.
In a hawkish stance, the BoG last week raised its policy rate by 250bps with its new policy rate rising to 24.5%.
Announcing the new policy rate, the Governor of the BoG, Dr Ernest Addison averred, “inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations.
“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path. Under the circumstances, the MPC decided to increase the Monetary Policy Rate by 250 basis points to 24.5 percent”.
In a conversation with the President of the World Bank monitored by norvanreports on Monday, October 10, Managing Director of the IMF, Kristalina Georgieva noted Central Banks and government’s around the world need to work together to rein in rising inflation.
According to her, inflation has become a major problem for economies around the world, particularly developing economies.
“Inflation is still a major problem for everyone but especially for the poor in developing countries.
“We cannot afford to let inflation to be a runaway train, it is very difficult route to navigate because if we don’t do enough then we are in trouble. But if we tighten too much (policy rates) then the fears of recession will materialise on a large scale,” she stated.
