Rethink the inflation targeting regime

 A senior fellow of the Institute of Economic Affairs (IEA), Dr. Eric Osei-Assibey, has called for a re-direction of the Central Bank’s inflation targeting (IT) regime.

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

Speaking at a roundtable discussion on the theme; ‘Inflation Targeting under Weak Macroeconomic Fundamentals’, Osei-Assibey said, “for us to be able to achieve our national aspiration that this, the economy expands rapidly and we accelerate our development and create more jobs, then perhaps the time has come for us to rethink about the IT regime.”

However, he noted that if the country still wants to go along with the IT regime, then we need to solidify the fundamentals.

“We need to make sure that, the productive sector of this economy is good, such that, we are exporting more with favourable balance of trade and strong currency just like in the developed countries. So that the inflation targeting would be relevant for us,” Osei-Assibey said.

He opined that, “the central bank can adopt the dual mandate goal, where it can combine both the real GDP and inflation, so that whilst it is looking at inflation it is also looking at economic growth.”

“After 10 years of the implementation of the inflation targeting, we have done well, but what is the sacrifice cost or the real economic cost?” he questioned.

He observed that, the country’s growth has been flat, but could have done much better.

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 is 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,” he explained.

Osei-Assibey pointed out the country’s immense dependence on commodity prices as well as its weak currency.

“So the fundamentals are so weak to support a very good reach in, which is the inflation targeting,” he added.

By Joshua W. Amlanu