Prof. Elikplimi Agbloyor Expresses Optimism Over Measures Introduced to Control Inflation

Professor Elikplimi Komla Agbloyor, an Associate Professor in Finance at the University of Ghana Business School, and the Chair of the Research Committee at Tesah Capital is hopeful about the measures that have been introduced by the Bank of Ghana (BoG) to control inflation and restore stability to the economy.

According to a news article written by Isaac Aidoo in The Finder newspaper, Professor Agbloyor mentioned that Tesah Capital had predicted that the policy rate would be increased to help deal with rising inflation. He avers that the increase in policy rate (200 basis points increase by BoG) is in line with Tesah Capital’s prediction of between 150 and 300 basis points. He stated further that the increase by the Bank of Ghana amounts to a cumulative rate of 450 basis points in total in the first five months of 2022.

Professor Agbloyor commented that the year-to-date depreciation of the cedi by 15.8 % to the dollar, 8.2% to, the pound and 8.5% to the euro contributed to imported inflation and consequently the increase in the policy rate. He said, “once your currency depreciates you need more cedis to import goods and this can fuel inflation”.

According to the news article, he justified the Bank of Ghana’s increase in the policy rate to curb inflation regardless of its consequential impact on lending for businesses and implications for growth. This justification was based on the fact that in 2021, the economy recorded a growth rate of 5.4%, which was higher than the projected rate of 4.4% and therefore the balance of risk was towards inflation and not growth. Prof Agbloyor concluded that the BoG was on the right path in focusing on curbing inflation since the country’s growth numbers for 2021 were impressive.
Additionally, Professor Agbloyor indicated that the impact of measures being taken to deal with inflation would be gradual. In saying this, he reaffirmed what the Governor of the Bank of Ghana, Dr. Ernest Addison said regarding the fact that it takes about six months for the impact on the economy to be felt when the policy rate is increased.

Accordingly, the UGBS Associate Professor called on the Monetary Policy Committee to give guidance to the market by providing its forecast of the policy rate for at least the next two years. He explained that this has now become common practice by central banks around the world. Among other suggestions and recommendations, he urged the government to consider putting in place strategic oil reserves that can be released onto the market in emergency periods. He also explained that improving the storage of commodities will help to stabilise prices during non-harvest seasons and crisis periods.

Source: The Finder