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BoG will Act If Inflation Goes Out of Target Band, Governor Assures

October 20, 2021
Stephen KotochiebyStephen Kotochie
in Economy, One Top Story
0
Labor Demand Lags Pre-COVID Levels

Dr. Ernest Addison - Governor of the Bank of Ghana

The Governor of the Bank of Ghana (BoG), Dr. Ernest Addison, has assured that his outfit will be required to act on its policy rate decisions if it senses a higher risk of inflation, thus, if inflation goes outside the target band.

Responding to a question as to whether the forecast 5.1% GDP growth rate will be achieved since the policy rate was maintained, Dr. Addison explained that the decision was based on the fact that the MPC was looking at the risk of higher inflation and the risk of a lower growth. Connoisseurs were looking for some reduction to propel growth but the Central Bank also expects average prices to remain stable.

“You are looking at the risk of higher inflation and the risk of a lower growth. Based on that, we left the rate where it was. In the outlook, we expect that inflation would stay within our target band. Obviously, if we sense that we have a higher risk of inflation going outside that target band then, we would be required to act. For now, we do not think that would occur”.

Dr. Ernest Addison

With regards to monetary policy direction aimed at addressing the lower growth rate concerns, Dr. Addison noted that the BoG would continue to maintain the lower reserve requirements and some of the regulatory reliefs given to the banks to help the banks support private sector growth.

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Impacts of growth on debt sustainability

The Governor explained how this year’s expected growth may impact the country’s deficit and then debt to GDP ratio. On the back of a smaller growth, deficit and debt to GDP ratio would look bigger. According to Dr. Addison, this is an issue of debt sustainability, saying “if it turns out lower then, we would have a larger deficit”.

“On the belief that the debt to GDP ratios would be higher, that is a serious consideration, which I think everybody should be concerned. On the importance of higher growth, we can grow ourselves out of the debt but unfortunately, if we do not get strong growth then the debt sustainability issues would become critical”.

Dr. Ernest Addison

Dr. Addison explained that in the last two years or so, a lot has been achieved on the monetary policy side by keeping the exchange rate relatively stable.

“We have still somehow helped in keeping our debt sustainable and apart from the exchange rate, interest rate, GDP growth rate, these are the variables that get into play to determine whether your debt would be sustainable or not”.  

Dr. Ernest Addison

The Exemptions bill

Still on the issue of deficit, Dr. Addison indicated that the pressure is mostly emanating from the low revenue mobilization. If revenues are able to pick up, it means the country can be on target. But one of the proposed solutions, as a country, has been the exemptions. To take care of the exemptions, a bill has been formulated which is yet to be passed.

Quizzed on the status of the bill and the Bank’s position on that, the Governor said: “This has been on the cards for a few years now. Bank of Ghana supports that bill. I believe it is with the parliamentary committee. So, may be at the next sitting of parliament, they might end up passing it, hopefully before the end of the year”.

READ ALSO: It costs at least US$100 million to win an election in Ghana – CDD study reveals

Tags: Bank of GhanaCOVID-19DebtdeficitDr. Ernest AddisonExemption billGDP

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