IMF Urges Ghana, Zambia And Others To Tighten Monetary Policy Further

The International Monetary Fund (IMF) wants countries such as Zambia and Ghana with very high inflation or acute domestic demand pressures to tighten their monetary policy further.

For countries with pegged exchange rates, the Fund, said, in its October 2022 Africa Regional Outlook Report that the amount of tightening needed will vary, but both monetary and fiscal policy should be consistent with supporting reserves and maintaining the credibility of the peg.

It also said for countries with more flexible arrangements, a sudden surge in capital outflows presents authorities with a choice between tightening monetary policy, letting the exchange rate depreciate, or intervening directly to support the currency.

“Intervention to smooth exchange rate volatility is a helpful part of the policy toolkit, but it is constrained in many cases by low foreign exchange reserves. Most countries have external positions that are weaker than justified by fundamentals and so could benefit from depreciation. In these countries, a mix of tightening and nominal depreciation might be preferable”.

So far, the Fund said monetary authorities throughout the region have indeed moved cautiously.

Over, two-thirds have started increasing policy rates to ensure that inflation and inflation expectations remain in check, but rate hikes have not kept pace with the pickup in headline inflation.

This caution, it stressed, is likely appropriate, given the supply-side origins of recent inflation and muted demand pressures.

But it urged authorities to still keep a close eye on possible second-round effects, as the costs of fighting inflation are typically much higher once inflation expectations become entrenched.

Inflation surged to 37.2% in September 2022

Inflation (year-on-year) shot up by 3.3% to 37.2% in the month of September, the Ghana Statistical Service has revealed.

This is against 33.9% recorded in August 2022.

According to the GSS, five groups recorded inflation rates higher than the national average in September 2022.