Economist, Prof Lord Mensah, has revealed that it’s too early for the Governor of the Bank of Ghana, Dr Ernest Addison, to attribute the decline in inflation for August to policy measures instituted by the Bank.
According to him, it’s equally “too early” to talk about downward trends. He explained that monetary policy dynamics over the past few years have rather been either maintained or shot up, as such, its impact on inflation has been quite “insensitive.”
Also, he noted that considering the seasonal dynamics of inflation, September has always been deemed a month of inactive economic activity in the country, hence the decline.
“So, usually we record relatively low inflation in September. I’ll say that it’s too early to attribute the policy measures having impact on inflation. So, let’s wait and see how consistent this measure will keep on bringing the inflation down so we can attribute the committee’s policy measures to inflation. For now, I see the inflation dynamics to be insensitive to the policy rate.”Prof Lord Mensah
Commenting on whether the country is likely to see the trend slow down, Prof Mensah responded in the affirmative. He stated that the inflation went up and it got to around 50% prior to August’s data, although it has declined overtime.
“Now, we’ve come to learn a lesson with IMF program and all those. We are going to see that kind of downward spiral – it will be slow from the beginning, but overtime, it will accelerate downwards.”Prof Lord Mensah
Prospects in decline in inflation
Furthermore, Prof Mensah noted that the decline in inflation could mean a lot of things to the Monetary Policy Committee (MPC).
He underscored that once inflation has started showing a downward trend, and investment rate also shows a signal downward, then it can be related to an economic recovery.
However, he revealed that now that government is on the market looking for money and treasury bill rates keep on going up, there seems to be a kind of “stalemate”, which is inciting inflation.
To this, he elaborated that on one hand, government is borrowing to keep interest rates up which will whet the appetite of investors to invest in treasury bills and other things.
“On the other hand, government is also fighting inflation using the monetary policy. So, it turns out that they have to keep that pace going, then probably they have no choice but to increase the policy rate.
“But when they increase it, we should know that it also has fit into the interest rate structures. It will affect the treasury bill rate. So, there should be a balance one way or the other, but I think either they maintain or increase it to keep the pace of inflation targeted.”Prof Lord Mensah
Touching on the convergence of governors of central banks in Africa meeting in Ghana to deliberate on single currency use, and the 2027 deadline stipulated, Prof Mensah revealed that the deadline may not be feasible.
He reckoned that for such a thing to happen, the convergence criteria needs to be revised because, prior to this, most of these countries were running almost single digit inflation, which has currently changed.
“… Probably, if we keep on being disciplined as far as these IMF measures are concerned, then we may get into some of these indicators that will call for meeting the convergence criteria. But from now to 2027, I don’t think Ghana per se, or any of the countries may be able to meet the convergence criteria.”Prof Lord Mensah