The Dean of University of Cape Coast School of Business. Prof. John Gatsi has expressed worry over Ghana’s economic challenges following the recent hike in prices of goods and services for which the country has recorded 23.6% inflation, the higher in the last 18years.
Speaking on the DayBreak Africa programme on Voice of America, on May 23, 2022, Prof. Gatsi described it as more trouble for the country, the decision of the Bank of Ghana to raise the Policy rate by 200 basis points increment.
He noted that the latest increment is in response to risk to the economy, high inflation, weak financial intermediation and fiscal stress which will trigger lending rate hike.
According to him, the measures taken in an environment of volatile depreciation promise rather further inflation.
He explained that high inflation and upward lending rate will undermine government contracts execution and create new levels of arrears due to cost implications for the procurement of materials.
Prof. Gatsi stressed that a number of projects may be abandoned due to inflation, depreciation and cost of borrowing.
He warned that there may be too much pressure on the banks as cost of mobilizing funds continues to increase with the possibility of distorted returns on the placement of funds with the banks.
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the policy rate by another 200 basis points to 19%.
This is the second time in 12 months that the Central Bank has increased the key rate by 200 basis points.
In his address to the media, Governor of the Central Bank, Dr. Ernest Addison, noted that risks to inflation are on the rise, hence the need to take a decisive stance to address current inflationary pressures.
“Inflation expectations by consumers, businesses and the banking sector have heightened. The risk to the inflation outlook are on the upside and emanates from the availability of inputs for food production, imported inflation, continued upward adjustments and ex-pump petroleum prices and transportation costs, possible increases in utility tariffs and potential wage pressures. The second-round effect of these administered price adjustments would further amplify inflation pressures on the outlook.”
“These considerations show that with the strong rebound in growth and the closing of the negative output gap, the balance of risk is clearly on inflation. The MPC took the view that it needed to decisively address the current inflationary pressures to re-anchor expectations and help foster macroeconomic stability. On the basis of the above assessment, the Committee decided to raise the policy rate by 200 basis points to 19%.”
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