IEA advocates for comprehensive approach beyond inflation targeting framework

IEA John Kwakye Dr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA)

Wed, 18 May 2022 Source: www.ghanaweb.com

Ghana records highest inflation in 18 years at 23.6% in April

Ghana not achieving inflation targets, IEA

Inflation targeting framework was adopted in 2007

The Institute of Economic Affairs (IEA) has said a more comprehensive approach is needed to stem the country's soaring inflation figures.

Back in 2007, the central bank adopted the inflation targeting framework along with a flexible exchange rate regime to ensure price stability over the medium term.

But the Director of Research of the Institute, Dr. John Kwakye, has opined that the country must move beyond its current inflation-targeting framework as the existing structure does not help Ghana to achieve its intended inflation targets.

In a statement issued and sighted by GhanaWeb, the IEA boss made a case for a much-suited inflation targeting framework within the Ghanaian context.

“The Bank of Ghana’s BWI partners and the markets expect the Bank to play by the rules of the framework. According to the framework, PR adjustments affect inflation by raising the cost of credit and thereby reducing aggregate demand in the economy,” the statement read in part.

“It is known, however, that in the Ghanaian context, the transmission of the PR is constrained by an under-developed and less-responsive financial sector. But even more important is the fact that Ghana has a long history of inflation with strong supply or cost undercurrents, in particular, food, fuel and the exchange rate," Dr Kwakye explained.

He continued that, "As an essentially demand-management tool, the IT framework is less suited to Ghana’s type of inflation. It is more suited to mature economies where inflation tends to be more demand-driven.”

He further called on the Bank of Ghana to engage with government and other relevant agencies to directly target key sources of inflation pressures especially; fuel, food, transport and the exchange rate in determining trends and factors.

Here is the full statement below

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Source: www.ghanaweb.com
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