Food Inflation: Food supply conditions could jeopardize BoG’s price stability mandate – 2nd Dep. Governor
Second Deputy Governor of the Central Bank, Elsie Addo Awadzi, has said the Bank of Ghana’s constitutional mandate of maintaining price stability could be in jeopardy due to the country’s inability to address food supply conditions.
Making the assertion at the launch of the Agriculture Stakeholder Concerning and Advocacy Platform, an agribusiness public-private partnership platform, the 2nd Deputy Governor noted food inflation, since May this year has intensified with available data indicating faster acceleration of food inflation relative to non-food inflation.
According to Mrs Addo Awadzi, inflation data have pointed to a gradual increase in food prices, and this trend has intensified in recent months on the back of the recent Russian-Ukraine crises. Food inflation now stands at 30.1 percent in May 2022, significantly up from 5.4 percent in May 2021. Food inflation is one of the major drivers of the country’s headline inflation which currently stands at 27.6%.
“Indeed, further insights in the data reveals faster acceleration of food inflation, relative to non-food inflation. Thus, the inability to address food supply conditions could in the long run jeopardize the Bank’s mandate of price stability,” she added.
Speaking about the relevance of the launch of the Platform, the 2nd Deputy Governor noted the promotion of a resilient and thriving agricultural and agribusiness sector should not be taken for granted because of its broader implications on the economy, including price stability and helping to stabilize the currency through reduced food imports and generation of export revenues from the sector.
Adding that, given the significant role of the agriculture sector in the economy, the BoG was instrumental in the initiation, design, and establishment of the Ghana Incentive-Based Risk Sharing System for Agricultural Lending (GIRSAL) and continues to support the scheme in various ways.
GIRSAL was designed to be a holistic and integrated system of instruments designed to de-risk the agricultural sector and incentivize banks to lend to the sector to drive agribusiness development, and reduce capital constraints that limit competitiveness. At the onset, BoG provided GH¢200 million seed capital and GH¢10 million for the set-up and operational expenses to GIRSAL.
However, in June 2018, BoG transferred its equity interest in GIRSAL Limited to the Government (Ministry of Finance), but continued to support the initiative in a number of ways. These include the approval of a zero-risk weighting of credit exposures covered by GIRSAL’s Credit Guarantee Scheme, which demonstrates the confidence the central bank assigns to GIRSAL’s CRG scheme, and thus, improving its credibility and attractiveness to financial institutions.
“Indeed, BoG is an invaluable partner to GIRSAL and looks forward to support its activities, including todays’ launch of an Agribusiness Public-Private Partnership Platform. This newly created AG Platform should provide stakeholders the avenue to identify key bottlenecks in the agriculture and agribusiness value chain, stimulate discussions, and identify possible solutions to unlock the true potential of this industry.
“As a founding shareholder, BoG pledges its continued support for GIRSAL’s activities. We expect that through the AG Platform, GIRSAL would continue to drive the policy discourse and develop innovative solutions to boost productivity and growth in the agricultural sector. This should ultimately improve food supply conditions and help lower inflation,” she remarked.
