Inflation: Impact of BoG’s monetary policy tightening to be evident in 2024 – IMF says
The full impact of monetary policy tightening by the Bank of Ghana, as well as other Central Banks around the world, will not be realised until 2024, says the International Monetary Fund.
In its January 2023 World Economic Outlook Update Report, the IMF noted that monetary policy tightening by the BoG and other Central Banks are beginning to cool down inflation.
“Signs are apparent that monetary policy tightening is starting to cool demand and inflation, but the full impact is unlikely to be realized before 2024,” it remarked.
This assertion by the IMF may prove to be right given the fact that the rate of increase in Ghana’s inflation rate between November and December was lesser (3.8%) compared to the rate between October and December (9%).
This is further evidenced by the BoG’s decision to go for a 100 basis points hike in its policy rate rather than a 200 basis points or more hike in its policy rate.
According to the IMF, about 84% of countries are expected to have lower headline inflation this year than in 2022.
Global inflation is set to fall from 8.8 percent in 2022 (annual average) to 6.6 % in 2023 and 4.3 % in 2024––above pre-pandemic levels of about 3.5%.
The projected disinflation partly reflects declining international fuel and nonfuel commodity prices due to weaker global demand.
It also reflects the cooling effects of monetary policy tightening on underlying (core) inflation, which globally is expected to decline from 6.9 percent in the fourth quarter of 2022 (year over year) to 4.5% by the fourth quarter of 2023.
By 2024, projected annual average headline and core inflation will, respectively, still be above pre-pandemic levels in 82% and 86% of economies.
In advanced economies, annual average inflation is projected to decline from 7.3 percent in 2022 to 4.6% in 2023 and 2.6% in 2024––above target in several cases.
In emerging market and developing economies, projected annual inflation declines from 9.9 percent in 2022 to 8.1% in 2023 and 5.5% in 2024, above the 4.9% pre-pandemic average.
In low-income developing countries, inflation is projected to moderate from 14.2% in 2022 to 8.6% in 2024.
