Inflation targeting regime needs to be reviewed

…TUC calls on BoG

The Trade Union Congress (TUC) has called on the central bank to review the inflation targeting (IT) regime.

Speaking at the Organised Labour/ FES forum on the economy of Ghana, the director of labour research and policy institute of TUC, Dr Kwabena Nyarko Otoo said, “from the Union’s perspective, rather than targeting inflation, we should target employment.”

Inflation targeting is a monetary policy where the central bank sets a specific inflation rate as its target or goal for the medium term.

Ghana’s Central Bank, over the years, has been stringent in its monetary policy, in order to achieve a set inflation target, due to the IT regime.

But Otoo believes there is the need to take another look at the country’s economic policy, specifically, the monetary policy.

Government cannot leave the private sector to unfavorable competition, he emphasised.

Expressing the intention of the TUC, Otoo said, “we think government must support strategically, by reducing interest rate, abandoning economic policies that do not support private sector development, including the trade policies as well as the IT regime.”

When the BoG increases the interest rates using the IT regime, the commercial banks also follow suite. However, when the Central Bank reduces interest rates, there is no clear mechanism for these commercial banks to also reduce theirs, Otoo noted.

Dr. Eric Osei-Assibey, a senior fellow of the Institute of Economic Affairs (IEA), in recent times has also called for a review of the IT regime, since the opportnity cost or the real economic cost has been that, the country’s growth has been flat, with high unemployment rate.

The Central Bank has been implementing the IT regime for over 10 years.

Government has reiterated its commitments to tackling the high rate of joblessness. However, current developments in the mining and financial sectors have led to workers being laid-off.

In the world today, only 30 countries are pursuing the IT regime.

About 90 percent of those countries are developed and industrialized, with very strong economic and productive structures which are less sensitive to commodity prices.

“But in our part of the world, here in Ghana, our economy is already weak, with weak institutions as well as weak transmission mechanism,” Osie-Assibey indicated.

By Joshua W. Amlanu