The efficacy of the Bank of Ghana’s (BoG) inflation-targeting monetary policy has come under scrutiny, with Member of Parliament for Nhyiaeso, Dr. Stephen Amoah, arguing that the strategy has failed to achieve its intended objectives. Dr. Amoah contends that the policy, designed to control inflation by manipulating money supply and interest rates, has instead contributed to a “strategic drift” resulting in escalating inflation rates. He points to historical data to illustrate what he calls the policy’s shortcomings.
Dr. Amoah’s critique centers on the BoG’s typical response to rising inflation – increasing policy rates. This tactic, aimed at curbing inflation by reducing the amount of money in circulation, has seemingly backfired, according to the MP. He cites instances where policy rate hikes were accompanied by corresponding increases in inflation. For example, between 2011 and 2016, the policy rate rose from 12.92% to 25%, while inflation climbed from 8.73% to 17.51%. Conversely, when the policy rate decreased from 22.5% in 2017 to 16% in 2019, inflation also fell from 12.38% to 7.17%. However, this period also saw GDP growth decline, suggesting a complex interplay of factors.
Dr. Amoah further highlighted the worrying trend from 2020 to 2023, where GDP growth declined while inflation soared. Policy rates increased significantly during this period, from 14.75% in 2020 to 29.50% in 2023. Concurrently, inflation escalated dramatically from 9.94% to a staggering 40.28%. This correlation, Dr. Amoah argues, demonstrates the ineffectiveness of the current monetary policy approach in controlling inflation and stimulating economic growth.
The MP stresses the detrimental impact of persistent inflation on the Ghanaian economy. He emphasizes that unchecked inflation erodes the purchasing power of citizens, increases the cost of doing business, and ultimately lowers the standard of living. He calls for immediate action to address this “policy anomaly” and prevent further damage to the country’s economic stability and long-term growth prospects.
To address this critical issue, Dr. Amoah advocates for the formation of a joint parliamentary committee comprising members of the Finance, Economy and Development, and Budget Committees. This committee would engage with the Bank of Ghana and the Ministry of Finance to scrutinize the current monetary policy direction and explore alternative strategies. He believes that a thorough review and potential recalibration of the policy are essential to build a more resilient economy capable of achieving sustainable economic growth.
Dr. Amoah’s call for a reassessment of the Bank of Ghana’s inflation-targeting strategy underscores the urgent need to find effective solutions to control inflation and foster economic stability. He emphasizes the importance of aligning monetary policy with the overall economic goals of the nation and ensuring that policy decisions translate into tangible improvements in the lives of ordinary Ghanaians. The proposed parliamentary committee would provide a platform for expert analysis and informed decision-making, potentially leading to a more effective and responsive monetary policy framework.
