Global conditions complicating policy decisions of central banks, says Addison

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison was speaking at the Financial Stability Board Conference in Accra

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has said current global conditions have put central banks across the continent in a tight corner as they must come out with policies that will tame inflationary pressures without sacrificing growth.

Speaking at the Financial Stability Board Conference in Accra, Dr Addison rued the damage global conditions such as the Russia-Ukraine war is having on prices of essential products like food and fuel, thereby, aggravating the difficulties some countries on the continent were already facing as a result of the pandemic.

“World growth is expected to be sustained in 2022. We have seen some emerging vulnerabilities in price developments, arising from the lingering supply chain bottlenecks from the pandemic, the ongoing effects of the Russian-Ukraine war on fuel and food prices, and further disruptions in international trade from China’s zero COVID-19 policy. These emerging risks have implications on the stability of the financial system across the globe and the sub-region is no exception.”

Some countries are in debt distress or at high risk of debt distress, arising from increased financing to contain the health and economic crisis. Indeed, some countries have already defaulted on their debt, while significant debt restructurings have been completed in some or underway in others,” he said.

The governor, who described the situation as complicated, said it requires policy makers to carefully determine policies that will minimise fiscal risk.

Dr Addison, “In the recovery phase, the region has to consider carefully how the economic rebound can be supported by policy makers while minimizing fiscal risks. The geo-political tensions, especially, the Russia and Ukraine conflict poses challenges for the region. The war in Ukraine has triggered a costly humanitarian and economic crisis. Global spillovers from the conflict are contributing adversely to sustaining the nascent recovery in global growth.

It has already aggravated inflationary pressures, especially for fuel and food and this elevated inflation will complicate the trade-offs that central banks face within the region between containing price pressures and safeguarding growth. These emerging risks, in addition to vulnerabilities from crypto assets, cross-border payment risks, and climate change require the attention of policy makers within the region,” he said.

Co-chair of the conference, Governor of the South African Reserve Bank, Lesetja Kganyago, also reiterated the significant impact the Russia-Ukraine conflict has had on the continent, describing it as introducing a multiplicity of shocks on African economies.

He said, though it is a difficult situation to manage, central banks across the continent must respond with speed to tackle the rising inflationary pressures.

“We’ve got to be congnisant of where we are. If one is to ask what keeps the central banks awake, the answer will be inflation. That is actually what is confronting us. In the response to the pandemic, it was speedy, it was very clear that measures that we were taking were war time measures and that at some stage, they will have to be withdrawn.”

Dr Addison added, “As the global economy opened up and demand started to rise, it became clear that supply change could not cope with the rise in the demand. And for central banks when there are supply shocks, we try to look through the shocks. What was not bargained for was that the response of the supply will not be as speedy as it was hoped for and prices began to rise.”

“Adding to that dangerous situation is the war of Russia and Ukraine and what it has done to global energy crisis and what it has done to global food prices. So that makes it difficult for central banks to say that this is just a shock; what we are faced with is a multiplicity of shocks. And if you are faced with a multiplicity of shocks, price formation changes elsewhere. What became clear is that central banks are going to respond to inflation and the speed with which they are going to respond became crucial,” he said.

The two governors urged all participants at the meeting to come up with workable solutions that will help steer economies on the continent to growth path in the face of the harsh global conditions.

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Obed Attah YEBOAH
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