Elevated inflation has caused withdrawal of Covid interventions – BoG Governor
Governor of the Central Bank, Dr Ernest Addison, has remarked that elevated levels of inflation in the country as well as around the world has triggered the rollback of Covid-related accommodative policies that provided liquidity injections, particularly those implemented by central banks.
According to him, given the upward trend in inflation in Ghana and around the world, many central banks have begun tightening their monetary stance in order to rein in inflation.
Adding that, interest rate increments especially in advanced economies coupled with the strengthening of the dollar has led to tighter global financing conditions.
“Elevated levels of inflation across advanced economies and emerging markets and developing countries has triggered swift and coordinated rollback of the Covid related accommodative policies that provided liquidity injections to the economy. Indeed, many central banks have begun tightening of their monetary policy stance in order to rein in inflation,” remarked Dr Philip Abredu-Otoo, Director of Research at the Bank of Ghana (BoG) delivering the Governor’s keynote address at a Financial Literacy Training Workshop held by the Bank for Journalists in the Southern Zone of the country.
At the peak of the Covid pandemic, the Bank of Ghana, as part of measures to mitigate the impact of the pandemic on the economy, implemented some covid-accommodative policies which included a 100 basis points reduction in its policy rate, reduction in the cash reserves requirement of banks, imposition of moratorium on loans owed banks by the private sector among others.
However, in view of rising inflation rate for instance, the central bank has had to increase its policy rate by 450 basis points to reach the current policy rate of 19%, all in the effort to drive down inflation.
Presently, inflation as at end-May 2022, stood at 27.6%, stretching above the apex bank’s upper limit of the medium-term target band.
According to the Central Bank, the country’s inflation is driven mainly by surging food prices, rising ex-pump petroleum prices, transport costs and pass through of exchange rate depreciation.
Headline inflation rose sharply to 23.6 percent in April 2022 from 19.4 percent in March 2022, while the Bank’s core inflation measure, which excludes energy and utility prices, also accelerated to 22.3 percent in April 2022 from 18.5 percent in March 2022. This illustrates that prices are becoming embedded.
In addition, inflation expectations by consumers, businesses and the banking sector have also heightened due to heightened uncertainty surrounding the inflation dynamics.
According to the Bank, there are significant upside risks to the inflation outlook, emanating from both domestic and imported sources.
These include the availability of inputs for food production, increased commodity prices (particularly crude oil) leading to continuous upward adjustments in ex-pump petroleum prices and transportation costs, possible increases in utility tariffs, potential wage pressures and intensified supply chain disruptions on account of the Russia-Ukraine war and China’s zero-Covid policy.
