The Director of Research at the Institute of Economic Affairs (IEA), Dr. John Kwakye, has voiced strong concerns about Ghana’s monetary policy framework, describing its current state as a “glaring failure.”
His critique stems from the country’s economic performance in 2024, which ended with inflation at 23%, a Monetary Policy Rate (MPR) of 27%, and a currency depreciation of 20%.
Dr. Kwakye asserted that these figures reflect the ineffectiveness of the Bank of Ghana’s (BoG) monetary strategies and calls for a comprehensive reset of its policies. “Stabilising prices and the exchange rate is simple practical economics. It is not rocket science!” he remarked in a post on X.
The Bank of Ghana, as the nation’s central bank, is tasked with pursuing sound monetary policies to ensure price stability and foster sustainable economic growth. This includes maintaining a medium-term inflation target of 8%, with a symmetric band of ±2%. Such a target is crucial for enabling the economy to grow at full potential without excessive inflationary pressures.
The BoG employs Inflation Targeting (IT) as its primary monetary policy framework, using the MPR to anchor inflation expectations and set the monetary policy stance. Additionally, the central bank is charged with promoting a robust financial sector through effective regulation and supervision. These responsibilities are integral to ensuring a stable economic environment.
However, the current economic indicators suggest that the BoG has fallen short of achieving its mandates, particularly in stabilizing inflation and the exchange rate.
Economic Indicators, A Mixed Picture
Despite high interest rates designed to curb inflation, Ghana closed 2024 with an inflation rate of 23%, significantly above the government’s year-end target of 15%. The country’s average inflation for the first 11 months of the year was 22.85%, a marked improvement from the 2023 average of 40.28%, but still well above the BoG’s inflation target.
Meanwhile, the cedi’s depreciation of 20% adds another layer of concern. Currency stability is critical for economic planning and investor confidence, and its continued volatility undermines these objectives.
Dr. Kwakye’s criticism highlights the disconnect between the BoG’s operational independence and its accountability. He suggests that the time has come for the central bank to be held more accountable for meeting its inflation and exchange rate mandates.
On a brighter note, Deloitte West Africa forecasts a positive outlook for Ghana’s economy in 2025. The professional services firm projects an average inflation rate of 11.9%, driven by a more stable cedi, easing domestic food prices, and diminishing supply-side.
“Ghana’s inflation declined in six of the 11 months so far in 2024, thanks partly to the effect of high interest rates,” Deloitte noted in its report, “Sneak Preview of 2025.” While the projected inflation rate remains above the BoG’s upper band target of 10%, the downward trend offers some hope for economic stabilization.
Despite the positive projections, significant challenges remain. The divergence between policy objectives and outcomes indicates a need for reform in the BoG’s approach to monetary policy. Dr. Kwakye’s call for a policy reset underscores the urgency of addressing these issues to avoid further economic setbacks.
Key Recommendations
He thus emphasized the need for the Bank of Ghana (BoG) to enhance its accountability. This involves holding the central bank to higher standards in achieving its inflation and exchange rate targets, ensuring that it delivers on its mandates effectively.
Additionally, a review of the existing Inflation Targeting framework is necessary to identify gaps and improve the effectiveness of monetary interventions. Such adjustments could help the BoG better align its strategies with the country’s economic realities.
Strengthening the cedi remains a critical priority. Focused efforts to stabilize the currency would not only reduce inflationary pressures but also bolster investor confidence, which is essential for sustainable economic growth.
Finally, greater coordination between monetary and fiscal policies is crucial. Collaborative solutions between these two arms of economic management could lead to more consistent and impactful outcomes, ultimately driving Ghana toward greater financial stability.
As Dr. Kwakye aptly pointed out, stabilizing prices and the exchange rate is not an impossible task. With the right reforms and enhanced accountability, the BoG can realign its strategies to deliver on its mandates, fostering a more stable and prosperous economy for Ghana.
