I just spent nearly two weeks in Ghana and could not help but leave the country thinking that something was fundamentally wrong in the public debate on monetary policy.
With the Bank of Ghana’s policy rate at 26 percent, much of the recent expert commentary and media reports have been focused on how the high costs of borrowing squeeze businesses, and ultimately stifle economy growth. As if everybody is ignoring the fundamental driver behind the cumulative 500 basis point interest rate hike by the BOG in 2015: Rampant inflation.
A recent story under the headline “BoG Governor must work to reduce interest rates” offered the following commentary by a local expert:
‘‘We are expecting him to put in policies that will bring down interest rates because money markets instrument thrives on the BOG base rate and the treasury bill rate.”
Not a word about inflation, which stands way above the Sub-Saharan Africa’s average and is more than double the Bank of Ghana’s 8 percent inflation target.
Instead of tackling inflation as number one concern, economists seem to expect the new Bank of Ghana Governor to square the circle: To be bold in both checking government spending and taking risk in reducing the policy rate.
“Certainly, that person should be able to say to the sitting government ‘No, there is no money so I cannot honour the cheque’.”
“I am looking forward to a central bank Governor who can keep one eye on inflation, which is very critical, and also another eye on economic growth -- so that the monetary policy rate does not always have to be adjusted upward but they can take just a little bit of risk and reduce it to motivate banks into reducing their lending rates.”
The stubbornly high inflation rate, which hit a high of 19 percent in January, merits a fundamental public debate about the country’s economic policies. Yet, local journalists, when I asked them, did not show much interest in writing about something so boring, and every day, such as a rise in consumer prices.
That seems to be the crux of the problem. People now consider constant price rises a reality. Economists would say that “high inflation expectations have become entrenched”. The lack of public discourse on the subject of inflation is a mere reflection of this phenomenon.
To succeed, Ghanaian policymakers must convince the average market woman — a key price-setter in the local economy — that she does not need to jack up her prices by 20 percent or so every year.
Truly a daunting communications task.