Ghana needs more than interest-rate increases to curb inflation

By David Whitehouse

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Posted on May 27, 2022 07:39

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

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