BoG’s efforts to stabilize cedi, lower interest rates hinge on inflation control, says Prof Ebo Turkson
Economist and member of the Monetary Policy Committee of the Bank of Ghana, Professor Ebo Turkson, has emphasized the necessity for the Bank of Ghana (BoG) to address the country’s high inflation rate and reduce it to the Bank’s medium-term target band of 8% ±2%.
Speaking at the inaugural Quarterly Economic Roundtable event organized by the Ministry of Finance and the University of Ghana on Tuesday, Professor Turkson stressed that failing to control inflation would hinder the BoG’s efforts to lower interest rates and stabilize the local currency.
“If we don’t tackle inflation, our aim to bring down interest rates and stabilize the currency is not going to work, and that is why the primary mandate of the Central Bank is monetary policy,” he remarked.
“When looking at inflation we consider the underlying factors that cause inflation, but at the same time we are also mindful about stabilizing the currency. So while the primary mandate is for inflation, we also look at stabilizing the currency and we have to get that right,” he added.
Professor Turkson speaking further at the Quarterly Economic Roundtable warned that reducing policy rates in a high inflationary and interest rate environment could trigger capital-flow reversals, leading to a depreciation of the cedi and further inflation.
“We’ve had criticisms that the interest rate is too high and questions about what we are doing with the Federal Reserve. We are keeping the interest rate high for a long time because if we reduce our rates, there will be capital-flow reversals. These reversals will lead to a depreciation of the currency, which will then cause inflation to rise,” he explained.
The Bank of Ghana (BoG) during its 118th Monetary Policy Committee (MPC) press briefing maintained its monetary policy rate at 29%.
Addressing the media at the 118th MPC briefing, Governor of the Central Bank, Dr. Ernest Addison noted that the Committee took the decision to help keep inflation stable.
He explained that the latest forecast shows a slightly elevated inflation profile on account of recent exchange rate pressures.
According to Dr. Addison, the projections show that inflation will remain within the monetary policy consultation range of 13-17% at the end of the year.
Meanwhile, in relation to stabilizing the cedi following recent exchange pressures, the Finance Minister, Dr Amin Adam, during a joint press briefing with the International Monetary Fund (IMF), and the Bank of Ghana (BoG) on July 1, 2024, outlined several key measures being implemented to combat the cedi’s depreciation.
According to Dr Amin Adam, the measures being implemented by the Government to deal with the depreciation of the Cedi include;
- tight monetary policy by the BoG;
- deepening the ongoing fiscal consolidation programme;
- intensifying the gold-for-oil programme and the BoG’s gold-for-reserves programme; and
- anticipated Forex inflows from disbursements from our multilateral and bilateral institutions as well as private sector financial institutions. These include the IMF 3rd Tranche of US$360 million which will be disbursed to Ghana by close of business today Monday 1st July 2024, following the IMF Executive Board approval of the 2nd Review last Friday;
- the IMF 4th Tranche of US$360 million expected in Q4 of 2024 after IMF Executive Board approves the 3rd Review;
- the World Bank DP02 tranche of US$300 million expected in Q3 of 2024;
- and disbursements from bilateral institutions/financial institutions including the World Bank GARID Project (US$150 million), EBID facility of US$200 million for SME support, and anticipated proceeds from 2024/2025 Cocobod syndication of up to US$1.5 billion in Q4 of 2024.
The year-to-date depreciation of the cedi against the US dollar stands at 18.4%, an improvement compared to the 22% depreciation recorded during the same period in 2023.
