The Centre for Economic and Business Research (CEBRE) has urged the Central Bank to take a second look at its approach to fighting the current inflation in Ghana.
According to CEBRE’s, these policies will worsen the plight of the average Ghanaian.
In a press release copied to BusinessWeek Ghana, CEBRE said the Bank of Ghana is fighting the inflation from the demand side by restricting money supply into the economy and by keeping the interest rate so high (22%) to deter borrowing, the Central bank assumes that inflation in Ghana is caused by the demand side (more money chasing fewer goods) and that the only way to resolve the situation is by mopping up the excess liquidity in the system.
From CEBRE’s analysis, the real cause of the current inflation in Ghana is not a demand problem but a supply side problem. That is fewer goods and services are being produced and supplied in relation to the amount of goods and services being demanded.
From the approach the Central bank is using in fighting inflation, it will only make it more difficult for business to operate and hence unable to contribute meaningfully to the economic growth of the country and for Ghana to come out of the situation we find ourselves in,” CEBRE stated.
In CEBRE perspective, what the productive sectors need at the moment is subsidized loans like the Ghana CARES programme the Finance Minister outlined in the last budget.
This is the time we need to enhance domestic production like the planting for food and jobs, rearing for food and jobs and all the interventions that will lead to increased productivity. If we rely on some of these domestic productions, we will reduce the imported inflation drastically. What has happened to the one village one dam to enhance all year-round production? One district one factory? Planting for food and jobs? Is it not out of the same planting for food and jobs that we saw a bunch of plantain being sold for 4 Ghana Cedis?” it asked
According to CEBRE, the cost of a bunch of plantain going up has nothing to do with more money in the system but shortage of plantain in the system. In fact everywhere, people are crying that there is no money in the system.
In fact, while the MPC was meeting yesterday, Conference of Heads of Assisted Secondary Schools (CHASS) were also having a meeting to consider the closing down of the schools for shortage of food stuffs to feed the students. They also complained of arears owed suppliers from last term and even money to buy the perishables are all in arears and hence they cannot continue to operate the schools. This clearly tells you that this is not a country with excess liquidity to be mopped up.
The Monetary Policy Committee (MPC) of the Central Bank yesterday August 17, 2022 increased the policy rate by 300 basis points from 19% to 22% in a bid to fight the inflationary pressures.
At the Monetary Policy Committee meeting they also took additional measures to raise the primary reserve requirement of banks from 12 percent to 15 percent by 1st November, 2022.
By increasing the Policy rate and hence the lending rate, the Central Bank is clearly crowding out the productive sectors from the credit market as it will be difficult for producers to borrow at this high rate to do business. This has a multiplier effect of hurting the economy ultimately in the form of low productivity, low GDP growth and further exacerbate the inflationary pressures as producers would pass every increase in cost to the consumer.
It is clear from elementary economics that the demand side management actually restricts the economy from expanding and hence has a negative impact on Gross Domestic Product (GDP). On the other hand, supply side management brings about more job creation and expands the economy and hence has a positive impact on economic growth. Let us think of ways to empower the productive sectors to increase productivity and not to stifle them.