Timing of BoG monetary policy hike wrong - Isaac Adongo explains

Bank of Ghana hikes policy rate to 17% from 14.5%

Cedi depreciates against US Dollar

Policy rate adjustment to take effect on April 1, 2022

A deputy Ranking Member on Parliament's Finance Committee, Isaac Adongo has questioned the timing of the Bank of Ghana's monetary policy rate hike.

Governor of the Bank, Dr. Ernest Addison on Monday March 21, 2022 announced a 250-basis point hike at 17 percent from an earlier 14.5 percent due to inflation risks, depreciation of the cedi and global financial constraints.

Reacting to the development on Metro TV’s Good Morning Ghana show, Isaac Adongo said the hike in the policy rate should have taken place back in September last year when the country moved towards double-digit inflation.

“We had also seen the cedi begin to face sustained depreciation and central banks' across the globe had began to take measures to address their economies but our central bank [Bank of Ghana] continued to remain steadfast with the status especially when Ghana is the weakest in terms of the chain”

“By 2019, Ghana’s fiscal expenditure was about GH¢55 billion and that is essentially money expected to go back into economy and by 2020, we moved to about GH¢105 billion which was almost about GH¢50 billion increase in the fiscal expenditure. If we had that quantum of money put into the economy and we didn’t put in measures to deal with that, then our inflationary expectations will not be anchored and this rendered so much difficulty in the economy”

Isaac Adongo added that supply chains disruptions in terms of food production imports and among others have caused excess liquidity in Ghana's economy.

“This was happening at a time where the economy was ravaged by COVID-19 and that productivity remained low with the economy growing by only 0.4% so it means a lot that money was not finding its way into capital and production because it would have created enough output which would have neutralized the huge product from the excess liquidity,” the lawmaker submitted.

“The economy was beginning to rebound from the COVID pandemic and so right from there, the Central Bank’s main policy position could have been to anchor inflationary expectations,” Isaac Adongo explained.