IMF cautions Central Banks against premature monetary easing, counter overly optimistic market expectations for rate cuts
The International Monetary Fund (IMF) has issued a cautionary note to central banks across the world including the Bank of Ghana, advising against premature monetary easing in its April 2024 Global Financial Stability Report.
The IMF emphasized the need to resist overly optimistic market expectations for policy rate cuts, which could further ease financial conditions and complicate the final stages of disinflation.
Ghana’s headline inflation has been on a downward trajectory being halved to 23.2% in February 2024 from 53% in December 2022 before a 2.6% pick-up in inflation to 25.8% in March 2024.
Given the significant reduction in Ghana’s headline inflation from December 2022 to March 2024, it is expected that cuts in the Central Bank’s policy rate will be commensurate with the decline in inflation.
But that has not been the case despite market expectations of policy rate cuts with the policy rate still remaining high at 29% following a 1% cut earlier this year from the previous 30% policy rate.
The IMF in its report highlighted the necessity for central banks to bolster efforts in containing debt vulnerabilities, particularly in emerging markets and frontier economies.
The IMF also highlighted the significance of a robust cybersecurity strategy to enhance the cyber resilience of the financial sector, asserting that cybersecurity accompanied by effective regulation and supervisory capacity, and improved reporting of cyber incidents is crucial.
The Fund further urged central banks to ensure that financial firms develop and test response-and-recovery cybersecurity procedures to remain operational in the face of potential cyber incidents, ensuring the delivery of critical services and limiting damage to the financial system.
