Maintain tight monetary policy — IMF cautions Central Banks
Dr Ernest Addison — BoG Governor

Maintain tight monetary policy — IMF cautions Central Banks

The International Monetary Fund (IMF) has cautioned countries like Ghana, which still have inflation above its central bank’s target range, to continue to maintain a tight monetary policy.


The fund indicated that although inflation in such countries may have been on a consistent decline in recent months, it was still too early to relax their monetary policy rates.

Speaking at a press conference in Accra, the IMF Division Chief for Africa, Luc Eyraud, said Ghana and countries who find themselves in this position could pause on increasing the policy rate, but added that it would be too early to reduce them.

Headline inflation in sub-Saharan Africa has been declining since reaching its peak in November 2022, with the situation varying across countries.

Based on the latest available data from February 2024, roughly a third of the countries still face double-digit inflation, largely due to significant currency depreciations and, even among countries with a marked decline in inflation, only a select few have reduced policy interest rates over the past 12 months, with the majority opting to continue tightening or maintain elevated policy rates, even after inflation has passed its peak.

In Ghana, the economy has been battling with high inflation, with the rate reaching a 22-year high and a peak of 54.1% in December 2022.

In response to the rising inflation, the Monetary Policy Committee of the Bank of Ghana kept a tight monetary policy stance by consistently increasing the policy rate to 30% by the end of 2023.

With inflation easing in 2023, reducing to 23.2% in December 2023, the central bank, for the first time in two years, reduced the policy rate to 29% in January 2024 and has since maintained the rate at 29%.

Going into its third Monetary Policy Committee meeting for the year, which is expected to commence next two weeks, the BoG has come under some pressure from the business community to further reduce the policy rate to allow businesses access finance at cheaper rates.

With 2024 also being an election year, some have also predicted that the central bank would relax the policy rate in the coming months to help support economic growth.

However, the IMF has cautioned that this may be too early as the inflation rate of 25.8% as of March 2024 was still way higher than the central bank’s target range of 6%-10%.

Easing inflationary pressures

Mr Eyraud noted that about half of the countries in sub-Saharan Africa show clear signs of easing inflationary pressures, with inflation already below or within their target bands.

He said central banks in such countries may consider gradually easing to a more neutral policy stance to allow for more accommodative financing conditions, boosting private investment and mitigating the impact of fiscal consolidation.

He added that in nearly one-third of the countries, inflation was trending lower but moderately exceeded targets.

“In such countries, a pause in policy tightening may be warranted to ensure confidence in achieving price stability but it may be a bit too early to reduce the rate.

“As for the rest, where inflation significantly exceeds target policy rate and continues to rise, policymakers should decisively tighten monetary policy until inflation is firmly on a downward trajectory and projected to return to the central bank’s target range,” he stated.

He said maintaining price stability should be the immediate goal.

Debt sustainability

Also speaking at the press conference, IMF Deputy Director, Catherine Pattillo, said the fund was in the process of reviewing its debt sustainability framework to reflect changes in the global environment.

She said in its debt sustainability analysis, the fund looks at all the debt indicators, including growth indicators, exports and revenue, to come up with an assessment.

“But going forward, we are going to review our debt sustainability framework to ensure we pay good attention to things that are changing in the ways countries are borrowing,” she stated.


She said the review would look at the change in creditors, as countries are now opting for more domestic debt, the risks and benefits that come with it and also look at the climate shocks and how they affect debt sustainability.

In order to achieve debt sustainability, Ghana has completed a restructuring of its domestic debt and is in the process of restructuring its bilateral debt and external commercial debt.

The domestic debt restructuring exercise saw the government swap old bonds worth GH¢82 billion for 12 new ones at reduced coupon rates and longer tenors.

The country, also in January this year, reached an agreement with the Official Bilateral Creditor Committee (OCC), co-chaired by France and China, to restructure bilateral debts of about $5.5 billion.


The government is still in discussion with the OCC to formalise the agreement through a memorandum of understanding.

On the external commercial front, the government has opened fresh talks with its Eurobond holders to make some slight changes to the interim agreement reached with the investors.

This is because the interim agreement reached falls short of the debt sustainability targets set by the IMF under its three-year programme with Ghana.

The country is seeking to restructure commercial debts of about $14 billion, out of which $13 billion is in Eurobonds.


Return to capital market

On when countries like Ghana could re-assess the international capital market, Ms Pattillo said this would depend on domestic and external conditions, as the uncertainties in the global finance market remain.

She, however, noted that with the good progress being made by Ghana under the IMF programme, it may not be long for the country to regain access to the international capital market.

After a two-year hiatus, African countries have made a comeback to the international capital market, with Cote D’Ivoire, Kenya and Benin issuing Eurobonds this year.

Ms Pattillo said this was a positive sign for the region, adding that it was a sign that the market sentiment for the region was improving.

She, however, noted that the Eurobonds have been pricey due to the high-interest rate regime globally.

“The yields are much higher than pre-pandemic,” she stated.

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