Cause of inflation is structural; increasing policy rate is not the answer – Dr. Agyekum Donkor

President of ECOWAS Bank for Investment and Development(EBID), Dr. George Agyekum Donkor

President and Chairman of the Board of Directors of the ECOWAS Bank for Investment and Development (Ebid), Dr. George Agyekum Donkor has proposed to the Bank of Ghana to look at other measures to deal with the rising inflation.

According to him, the effectiveness of policy rate hikes by the Central Bank remains difficult to estimate, especially since inflation has continued to gallop in many jurisdictions, albeit at a slower pace than initially experienced.

Delivering a speech on the theme ‘Thriving Under Economic Crisis; the way forward’, Dr. George Agyekum Donkor said while the monetary policy tweaks are deemed necessary to an extent, it is very important to underline that the cause of inflation is structural and not monetary.

To this end, he stressed that it is critical to focus on resolving the factors that got us here – the supply-side factors – rather than being overly fixated on the monetary factors.

“This can only be resolved through effective monetary and fiscal policy coordination to resolve the supply-side issues,” the president of the ECOWAS Bank for Investment and Development said while delivering a keynote address at the Doctoral graduation ceremony of the Nobel International Business School (NiBS) on Saturday, November 26.

Dr. George Agyekum Donkor proposes that in the midst of the global economic crisis, Central banks should be less hawkish in increasing the monetary policy rate, given the overall impact rate hikes have on the cost of funds and growth.

He insists that if Governments should counterbalance rate hikes with supply-side policies, they will be able to address the incessant inflationary trend.

"Given the lack of concessional resources on the international capital market, development finance institutions should deploy some of their resources to finance critical investment projects that will help ease the burden of the populace.

“Financial institutions should look to support governments to develop import-substitution industrialisation programmes, with the aim to easing the pressure on the exchange rate,” Dr. George Agyekum Donkor shared.

Among other things, Dr. Agyekum said Banks should partner with governments to invest in the growth poles of the economy to facilitate a quick rebound from the economic downturn while urging financial institutions to pay attention to start-ups and small businesses that come up with innovative ideas on how to solve some of the challenges that plague the African continent.

Meanwhile, the Governor of the Bank of Ghana, Dr. Ernest Addison has increased the Monetary Policy Rate to 27% today, November 28.