Dr. John Kwakye, the Director of Research at the Institute of Economic Affairs (IEA), has expressed strong criticism of the Bank of Ghana (BoG) for its strategy of utilizing a high policy rate to support the cedi.
He argued that this approach is misguided, as the BoG is ill-suited to combat inflation effectively due to the underlying supply and cost factors influencing the economy.
Dr. Kwakye emphasized that the elevated policy rate is exacerbating cost-push inflation, which occurs when production costs rise and are passed on to consumers.
He further warned that this strategy is not only ineffective in managing inflation but is also detrimental to economic growth and job creation, ultimately stifling the country’s development.
“The economy is said to be on top of voters’ concerns going into the elections. It is the economy, stupid!
“The BoG knows that any attempt to appreciate the cedi will have disastrous consequences. It will come at a heavy price of massive reserves loss. This will make the appreciation short-lived and unsustainable”.
Dr. John Kwakye
Dr. Kwakye further remarked that the Bank of Ghana has become a “toothless bulldog” in terms of its ability to influence the exchange rate effectively.
He expressed concern that the central bank’s actions lack the necessary impact to stabilize the cedi amid ongoing economic challenges.
He emphasized that, despite this ineffectiveness, the BoG has no choice but to continue accumulating reserves, as required under the Extended Credit Facility (ECF) agreement.
This approach comes at a time when the cedi is still experiencing depreciation, highlighting the central bank’s limited options in addressing the ongoing currency crisis.
Commenting on Dr. Ernest Addison’s, Governor of BoG, claim that he can influence the appreciation of the cedi, Dr. Kwakye noted that achieving a stronger cedi requires appropriate fiscal and monetary policies, along with effective regulatory and legal enforcement.
He added that comprehensive structural reforms are also essential to ensure the long-term stability of the exchange rate.“BoG cannot just wish away Cedi’s appreciation without working for it”.
Cedi Possibly ‘Beyond Repair’
Furthermore, Dr. John Kwakye remarked that the cedi has suffered damage that may be irreparable, describing this situation as particularly unfortunate.
He highlighted that dollar inflows have been severely constrained by several factors, including limited access to international capital markets and a shortage of cocoa-syndicated loans.
He further pointed to delays in disbursements from the IMF and other donor organizations as contributing to the challenges faced by the currency.
These issues, Dr. Kwakye noted, are compounding the difficulties in stabilizing the cedi and are reflective of broader economic vulnerabilities.
“Why is the IMF Board scheduled to meet so late to review Ghana’s program? This will create an unhelpful long period of uncertainty. And why is the meeting scheduled so close to Ghana’s election? More questions than answers!”
Dr. John Kwakye
He suggested that Ghana’s “economic managers” must develop effective solutions to tackle the country’s persistent inflation and currency depreciation.
Dr. Kwakye emphasized that there is a wealth of knowledge and expertise available from various sources, including local and international economic experts.
He maintained that policymakers can formulate strategies that not only address immediate challenges but also lay the groundwork for sustainable economic stability in the long run by tapping into this reservoir of insights. “Ghana doesn’t need aid or reparation”.
Dr. Kwakye stated that Ghana possesses abundant resources right beneath our feet, and we need to take ownership of what belongs to us.
He emphasized the importance of leveraging these local resources to foster self-sufficiency and economic growth.
He also asserted that any politician advocating for reliance on foreign aid and reparations to develop Ghana should be rejected by voters at the December polls, as true progress can only come from within the nation itself.
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