Accra, Feb. 14, – Dr Johnson
Asiamah, a former Deputy Governor of the Bank of Ghana (BoG), on Wednesday
called for a concerted effort to enhance the effectiveness of the monetary
policy regime in the country.
Dr Asiamah said in Ghana, the
financial markets were still shallow and lacking the feedback loop for a
monetary policy stance.
He said this means that
policymakers could refine as much information as possible from changes in
market sentiments such as deriving inflation expectations from the financial
markets instead of survey based approach.
He made these remarks at the
Institute of Economic Affairs (IEA) roundtable in Accra, on the theme;
“Inflation Targeting Under Weak Macroeconomic Fundamentals: Does Ghana Need a
Monetary Policy Re-direction?
Monetary policy refers to a
combination of measures designed to regulate the value, supply and cost of
money in an economy, in consonance with expected level of economy activity.
The objective of a monetary
policy is usually to ensure price and financial stability; and subject to that,
to support the Government’s economic objectives, including those for growth and
employment.
The former Deputy Governor said
there was still limited availability of data, such as high frequency data on
job creation or employment in the country; stating that, if addressed, these
could complement existing information available to policymakers regarding
developments in the economy.
He said thirdly, there was the
need to continue working on enhancing the effectiveness of transmission
mechanism for monetary policy; declaring that, these includes reforms in the
interbank money market and the interbank forex market.
Dr Asiamah said “These together
with the broad efforts to address fiscal dominance, improve our resilience to
external shocks and also address the impact of administered prices, will go a
long way to enhance the effectiveness of our monetary policy framework”.
Explaining the theme for the
roundtable, Dr Asiamah said it had been just over a decade since the current
framework of Inflation Targeting was introduced in the country, and it was
appropriate to evaluate its effectiveness and to offer views on the way
forward.
He said clearly, Ghana’s framework
for Monetary Policy had changed over the years, in response to changes in
economic conditions.
“As you will recall, there were
direct controls, prior to 1992, then to the period of market based indirect
monetary policy (monetary targeting) from 1992 until 2002 when the inflation
targeting started,” he said.
He said the full adoption of the
inflation targeting started in 2007, and this was consistent with moves in
other peer lower-middle income countries.
He noted that looking back over
the last decade, it was apparent that a number of shocks had been driving the
dynamics; these include fiscal dominance, the pass-through effects of currency
depreciation, upward adjustments in utility tariffs and prices of petroleum
products, and increase in transport fares.
“So, until we are able to address
these factors, whatever monetary policy framework we have in place will
continue to suffer from the impact of these shocks,” Dr Asiamah stated.
On the usual criticisms on
inflation targeting regarding its perceived narrow focus, he said the country’s
framework was one that focuses on the entire macro set of variables.
Dr Asiamah said the BoG Monetary
Policy Committee reviews developments in inflation, the global economy, the
real sector, the monetary sector, the fiscal sector, the external sector,
consumer and business sentiments and inflation expectations.
He said the focus model used for
the inflation forecast was also calibrated to capture developments across the
economy and therefore, the narrow scope argument was not supported in practice.
“Of course, I am not saying that
monetary policy cannot be used to achieve other competing goals. It may indeed,
be used for other objectives that go beyond maintaining price stability, such
as preventing exchange rate crises and supporting credit growth,” he said.
“The lesson from best practices
however, is that the pass-through from the policy rate to interbank market is
usually weaker in countries where multiple and sometimes conflicting goals are
pursued,” Dr Asiamah added.
Dr Eric Osei-Assibey, Adjunct
Senior Fellow at the IEA, delivered the keynote for the discussion.
GNA
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