Ghana needs more than interest-rate increases to curb inflation

By David Whitehouse

Posted on Friday, 27 May 2022 09:39
Ernest Addison, Governor of the Bank of Ghana talks during the bank’s Monetary Policy Committee new conference in Accra
Ernest Addison, Governor of the Bank of Ghana at the bank’s Monetary Policy Committee news conference in Accra, Ghana March 21, 2022. REUTERS/Cooper Inveen

Ghana needs to reduce taxes on some imports and take long-term supply-side measures as interest rates alone are no longer capable of controlling inflation, James Dzansi, an economist at the International Growth Centre in Accra, tells The Africa Report.

Ghana this week raised its policy rate by 200 basis points to 19% in a bid to rein in spiralling prices. Consumer price inflation in April reached an 18-year high of 23.6%. Central bank governor Ernest Addison has described the inflation rate as “baffling”.

The monetary policy rate “appears not to be effective in easing inflationary pressure,” Dzansi says. That does not mean it was wrong to raise rates, as the situation would otherwise be worse, he says. But higher rates usually work when inflation is caused by demand, whereas a larger part of the problem now comes from the supply side, he adds.

International prices for agricultural commodities such as wheat, sunflower oil and corn increased by 30%, 67% and 21% respectively between January and March, according to Moody’s. Russia and Belarus are among the largest exporters of fertilizers, and sanctions against them are likely to weigh on 2023 global agricultural production, prompting further food price inflation, Moody’s says.

Ghana needs to take further steps outside the central bank’s remit, Dzansi says. He proposes a temporary reduction in import duties on rice, wheat and cooking oils. This would lead to increased imports and so reduce food inflation, now running at 26%, he says.

  • A reduction of 20% in import duties would be a starting point for a sensitivity analysis of the impact of such a move, Dzansi says.
  • While government revenue would take a short-term hit, lower inflation would mean interest rates, making it cheaper for the government to service its debt.
  • “The social benefits far outweigh the potential costs to government.”


The rate hike is “a strong step in the right direction,” says Omar El-Gazzar, a currency dealer at Crown Agents Bank in London. While food is a leading contributor, inflation is now well entrenched across Ghana’s consumer basket, with the decline of the cedi a contributing factor, he says. Higher rates may stimulate interest in buying bonds and so help shore up the currency, he adds.

But even if the war in Ukraine were to end quickly, global supply chains would still need an extended period to recover. Dzansi believes longer-term solutions are also needed. Ghana can mitigate the impact of rising fertiliser prices by starting to produce fertilisers for itself and the west Africa region, he says.

All the fertiliser used in Ghana is currently imported. The result is “continuous dependence on the rest of the world. We need to take another look.” Such a move “could be very useful in raising farm yields.”

  • The government should consider a waiver on import taxes for fertiliser inputs, which would mean higher tax revenue and job creation in the long term, Dzansi argues.
  • Ghana has good connectivity with west Africa, and the strength of future fertiliser demand means there will be room for Ghana and other regional suppliers, he says.
  • “A forward-thinking government should see the benefit of fertiliser plants.”

Bottom line

Ghana needs to look at policy responses beyond interest rates if inflation is to be brought under control.

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