Economist, Professor Charles Ackah, says the Bank of Ghana’s recent policy rate hike might be a measure in the wrong direction.

According to him, while increasing policy rates across the globe have been used during inflation caused by demand and supply disparities, Ghana’s inflation is rather structural and does not necessarily need a continuous increment of the policy rate.

He noted that even though the policy rate hike will reduce month on month inflation for the short term, in the medium to long term, the country may experience a shrinking economy and increased unemployment rates.

Speaking on JoyNews’ PM Express Business Edition, Prof. Ackah said, “If you look at the inflation that we are having, I think the Central Bank policy is wrong headed, in my view. Because inflation and I think the governor acknowledged that inflation is demand side and supply side. This particular inflation is a structural inflation and a structural inflation is not a demand inflation.

“It is not inflation because demand is exceeding supply. It is not as if people have money to buy goods and the goods don’t exist and prices are galloping. This is structural because of what is happening from basically Russia-Ukraine issues and also the other global conditions. So the way to fight this inflation I don’t think will require continuous increase of the policy rate any time the MPC meets.

“Because what that may be achieving for us is a short term reduction on month on month inflation. But it will be at the risk of reducing economic growth and employment in the medium to long term so the Central Bank is making a choice more or less to sacrifice jobs and employment for price stability which for me I think is unfortunate because what you’re going to realize then is that GDP growth for the year and GDP growth for 2023 is going to be compromised.”

He has thus called on the Central Bank to reduce the policy rate instead to drive economic growth and employment, and urged government to "come out with fiscal stimulus to help people to increase their purchasing power to survive."

His statement comes on the back of the Monetary Policy Committee (MPC) of the Bank of Ghana increasing the policy rate by 250 basis point to 24.5%.

This is the highest policy rate increase since 2017.

The rate hike means it will become more expensive to borrow from the banks, a situation that will push the cost of living and doing business in the country further up.

Addressing the media, the Governor of BoG, Dr Ernest Addison, explained that the committee reached the decision in order to check the rising rate of inflation as the country negotiates with the International Monetary Fund (IMF) for an economic programme.

“Inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations”.

“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path,” Dr Addison added.