IMF urges central banks to increase policy rates as inflation rates surges
The IMF wants central banks in Africa including the Bank of Ghana to increase its policy rate further if inflation continues to rise whiles other economic challenges persists.
The Bank of Ghana increased the policy rate at which its lends to commercial banks to 17 per cent last month to check the increasing rate of inflation and also avert the rapid fall of the cedi.
However, the IMF wants central banks to further increase lending rates to guard against financial stability risks.
According to Abebe Selassie, Director of the African Department at the IMF, ‘’Central banks need to be prepared to raise rates if necessary, guarding against financial stability risks and maintaining a credible policy framework. And third managing exchange rate adjustment resulting from rising interest rate in advanced economies and greater uncertainty due to war in Ukraine will also be important’’.
Meanwhile, World Bank President, David Malpass, has urged the Bank of Ghana and other financial regulators around the world to use all available monetary policy tools to help check rising inflation.
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Inflation across the globe has seen increments due to rising crude and food prices on the back of the Russian-Ukraine war and disruptions in supply chains.
The general price levels of goods and services in the country hit a record level of 19.4% in March 2022.
However, President Malpass noted the situation calls for much tougher regulatory measures to minimize the impact of inflation especially on the poor.
“As central banks raise interest rates, it’s important for them to use all their tools and not be undercut by government demand stimulus. The central banks can use tools that add to supply and that allow capital allocation to be improved. I think that’s going to be vital.
“They’ve been talking about, not just interest rates, but also shrinking the balance sheet, which I think would have a stimulative effect on the global investment climate, because it would occupy less of the capital at the central banks from the current situation. Also, they have regulatory policy tools that can be used to allow and encourage more investment in small businesses, in new businesses, that will be the dynamic portion of a new economy,” he stated.
