Central bank's inflation fight cost GHs 15.6 billion
The Bank of Ghana's efforts to control inflation since 2022 have resulted in a GHS 15.6 billion loss, according to recent reports. Professor Ebo Turkson, an external member of the Monetary Policy Committee, stated that while these actions were necessary, they came at a significant economic cost. The central bank employed tight monetary policies, including raising interest rates and conducting liquidity mop-ups, to curb inflation which peaked at 54 percent in December 2022. These measures, designed to restore macroeconomic stability and price stability, led to increased interest expenses on the central bank's balance sheet.
The Bank of Ghana recorded a GHS 15.6 billion loss as a consequence of its aggressive inflation-fighting strategy. This significant financial outcome stemmed from measures implemented since 2022. Professor Ebo Turkson, an external member of the central bank's Monetary Policy Committee, revealed these details in his personal capacity.
Professor Turkson explained that controlling inflation, a critical public good, inevitably involves economic trade-offs. The central bank's primary objective is price stability. Achieving this goal required decisive actions, especially when inflation surged to approximately 54 percent by December 2022. These interventions were crucial to prevent a deeper economic crisis and restore order.
Ghana's economy has been navigating high inflation since the latter part of 2021. The peak in December 2022 demanded forceful policy responses. The central bank's strategy involved tightening monetary policy. This means making money harder to borrow and more expensive. The aim was to reduce the amount of money circulating in the economy. This process of withdrawing excess liquidity is known as liquidity mop-up operations. These actions directly target demand-driven inflation, while also addressing supply-side issues.
The monetary policy measures included raising the policy rate. This is the benchmark interest rate the central bank uses to influence lending rates across the economy. As the policy rate increased, the cost of borrowing for the central bank also rose. This is because the central bank issues bonds to absorb excess cash. The interest paid on these bonds is closely tied to the policy rate. Professor Turkson noted that as the bank fought inflation, its interest expenses increased substantially.
Professor Turkson stated that these costs are a normal part of monetary policy implementation. He emphasized that the success of such policies should be judged by whether they meet their mandate. The mandate, in this instance, is controlling inflation and ensuring price stability. He stated that the Bank of Ghana continued these liquidity management operations to support macroeconomic stability. These comments follow the public disclosure of the GHS 15.6 billion loss.
Source: StatsGH — Ghana's data-driven news platform