Oppong Nkrumah Questions BoG’s Inflation Strategy

Ranking Member Kojo Oppong Nkrumah of Parliament’s Economy and Development Committee has raised doubts about the Bank of Ghana’s aggressive inflation-control policies. He expressed concern that such measures might be impeding job creation and economic growth. The MP argued that monetary policy should balance controlling inflation with fostering economic activity, cautioning against an overemphasis on headline inflation numbers.

During a meeting with Bank of Ghana officials, Mr Oppong Nkrumah questioned the Central Bank’s adherence to an 8% inflation target, with a tolerance of plus or minus two percentage points. He pointed out that this range places inflation within the 6-10% band. He inquired why the Bank was targeting levels below the lower boundary at a time when inflation had fallen to 5.5%.

The MP also questioned whether maintaining inflation below 6% could be indicative of an excessively tight monetary policy, particularly when businesses and households continue to grapple with high operating costs and other economic burdens. He maintained that the inflation target was not merely a statistical goal but aimed at fostering an environment supportive of growth and employment.

A Bank of Ghana representative disagreed with the notion that the Central Bank was intentionally pushing inflation below its target range. They explained that the Bank’s forecasts projected inflation to return to the target band over the forecast period. The official attributed the unusually low inflation readings, including the recent 3.2%, to the impact of higher inflation recorded in the previous year—known as base effects.

Mr Oppong Nkrumah urged further scrutiny of the Bank’s approach, citing the International Monetary Fund’s latest assessment, which indicated that much of Ghana’s inflation was driven by costs. He questioned whether the Bank’s reliance on demand management techniques—such as liquidity sterilisation—could unnecessarily restrict economic activity while not fully addressing the underlying drivers of rising prices.

He specifically pointed to increases in services inflation, rent, and electricity costs, stressing that these factors continue to burden households and businesses even as headline inflation declines.

The former Information Minister sought to ascertain if the Central Bank was consulting the government and advising institutions on strategies to mitigate these cost pressures. He highlighted the persistent rise in services inflation, rent, and electricity costs, which remain significant challenges for households and businesses despite the overall decline in headline inflation.

The Bank of Ghana official defended the Bank’s reliance on economic data, stating that monetary policy decisions focus on managing demand rather than directly tackling supply-side cost pressures. They emphasized that the Monetary Policy Committee (MPC) had reduced the policy rate from 28% to 14%, underscoring that decisions were aimed at balancing price stability with economic growth.

The Bank affirmed that its inflation-targeting framework considers both price stability and economic growth, while remaining mindful of potential impacts on the real sector.