On Tuesday, 13th February 2018, Dr. Eric Osei-Assibey, Visiting Fellow at the Institute of Economic Affairs (IEA), led a roundtable discussion on the theme: “Inflation Targeting Under Weak Macroeconomic Fundamentals: Does Ghana Need A monetary Policy Re-direction?”
Dr. Osei-Assibey sought to argue that inflation targeting in the midst of fiscal indiscipline and persistent over-expenditures, exchange rate fluctuations and weak productive structures results in high interest rates.
Dr. Frankie Asare-Donkoh, Director of Advocacy and Programmes at the Institute gave distinguished guests a warm welcome to the IEA. Following an introduction by Dr. Asare-Donkoh, Former Governor of the Bank of Ghana, Dr. Johnson Asiamah, gave his opening remarks as Chairman of the discussion, in which he gave guests a brief insight into the theme and introduced Dr. Osei-Assibey.
Dr. Osei-Assibey began his presentation by giving participants an overview of inflation targeting in Ghana. This was followed by a look at Ghana’s monetary policy regime and the impact of inflation targeting on macro-economic indicators comparing pre and post inflation outturns.
He argued that, although inflation targeting had helped in reducing inflation over the period of its implementation, he believed that this had come at a huge economic cost to the country.
He also added that while the inflation targeting framework has been found to be associated with high macroeconomic performance, the over fixation on price stability without recourse to real economic outcomes such as growth and employment raises a major concern.
Dr. Osei-Assibey referred to the country’s oil growth stating that, the country’s non-oil growth had been flat when it could have done better, interest rates remained one of the highest in Africa and unemployment was still high.
He also pointed out that inflation targeting was not suitable for every country as it needed a strong economic fundamental to thrive because,
globally, there are only 30 countries who are pursuing inflation targeting and about 90 per cent of these countries are developed and industrial countries with very strong economic and productive structures less sensitive to commodity prices.
However in the developing world, our economy, institutions and the transmission mechanism are weak as we depend so much on commodity prices, exchange rates fluctuate every now and then so the fundamentals are too weak to support an otherwise good regime.
He further explained that for Ghana to be able to achieve its goals and for the economy to be able to expand rapidly and accelerate development, it is time to rethink the inflation-targeting regime.
In his recommendations, Dr. Osei-Assibey suggested that it was time the government take into account alternative policies that support the country’s national priorities.
One alternative is for the central bank to consider the dual mandate approach which combines both the real gross domestic product (GDP) growth and inflation, as this combines both inflation and economic growth.
The event was well attended by key stakeholders including senior government officials, academics, representatives of civil society organisations, officials of the main political parties, traditional leaders, members of diplomatic corps and the media.