Prof. Lord Mensah Advocates for Broader Monetary Policy Strategy in Ghana
Financial Economist at the University of Ghana Business School, Professor Lord Mensah, has emphasized the need for Ghana’s monetary authorities to adopt a broader approach to economic management, beyond merely targeting inflation.
Speaking during the NorvanReports and Economic Governance Platform (EGP) X Space Discussion on Sunday, themed “Fiscal Vs Monetary Tug-of-War: Economic Salvation or Damnation?”, Prof. Mensah highlighted the contrasting effects of high interest rates on different market players and the importance of long-term economic considerations in monetary policy formulation.
Impact of Interest Rates on Market Players
Prof. Mensah noted the dual nature of Ghana’s financial market, distinguishing between those who require funds for business operations and those seeking to invest their capital. He argued that while high interest rates benefit investors, particularly banks with substantial holdings in government instruments, they simultaneously restrict access to credit for businesses and individuals.
“If you look at the banking sector’s balance sheets across all banks in Ghana, they have a heavy weighting in government instruments. So, as long as interest rates remain high, banks are happy because they thrive on interest income,” he remarked.
However, he cautioned that high interest rates negatively impact businesses and individuals who rely on credit to finance operations and consumption, thus limiting economic growth.
Examining Ghana’s Inflation Dynamics
Addressing Ghana’s inflationary trends, Prof. Mensah underscored the influence of both imported inflation—driven by exchange rate volatility—and domestic market sentiment. He explained that prolonged inflation fosters uncertainty, compelling businesses to preemptively increase prices in anticipation of future cost hikes.
“When inflation remains high for an extended period, businesses price their goods and services on the higher side due to uncertainty about future costs. This, in turn, exacerbates inflationary pressures,” he explained.
Prof. Mensah also pointed to structural weaknesses in Ghana’s food production capacity as a key driver of inflation.
He urged policymakers to assess whether fiscal measures align with data from the Ghana Statistical Service, stressing the need for effective policy implementation rather than merely increasing budgetary allocations to sectors like agriculture.
A Call for Broader Monetary Policy Considerations
Prof. Mensah challenged the Bank of Ghana’s Monetary Policy Committee (MPC) to extend its focus beyond inflation targeting to encompass broader economic outcomes such as employment and production growth.
“Chasing inflation alone is not enough. The question remains—if inflation declines, does that translate into job creation and increased production? These are critical considerations that must shape monetary policy decisions,” he asserted.
Drawing comparisons with the U.S. Federal Reserve’s approach, he highlighted the inclusivity of the American system, where stakeholders from various sectors, including farmers and industrialists, are incorporated into policy deliberations. He advocated for a similar approach in Ghana, urging the central bank to leverage its research capabilities to assess the real economic impact of monetary policies.
“The Bank of Ghana must look beyond its comfort zone and consider the long-term economic implications of its policies. A more inclusive and holistic approach will ensure that monetary policy decisions contribute meaningfully to national development,” he concluded.
The discussion, which featured prominent economists shed light on the ongoing debate between fiscal and monetary authorities in managing Ghana’s economic challenges. As the country navigates its recovery path, experts like Prof. Mensah continue to call for a more balanced and strategic economic governance framework.
