The International Monetary Fund (IMF) wants countries with very high inflation or significant internal demand constraints, such as Zambia and Ghana, to tighten their monetary policy even more.
In its October 2022 Africa Regional Outlook Report, the Fund stated that the level of tightening required for countries with pegged currency rates would vary, but both monetary and fiscal policy should be consistent with strengthening reserves and maintaining the credibility of the peg.
It further stated that in nations with more flexible arrangements, a rapid rise in capital outflows forces policymakers to choose between tightening monetary policy, allowing the exchange rate to decline, or intervening directly to maintain 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”.
According to the Fund, monetary authorities around the region have acted carefully thus far.
Two-thirds of central banks have begun raising policy rates to keep inflation and inflation expectations in check, but rate increases have not kept pace with the rise in headline inflation.
It emphasized that this prudence is likely warranted, given the supply-side roots of recent inflation and weak demand pressures.
However, it recommended policymakers keep a lookout for potential second-round consequences, as the costs of managing inflation are often considerably higher once inflation expectations get established.
In September 2022, inflation reached 37.2%.
According to the Ghana Statistical Service, inflation increased by 3.3% year on year to 37.2% in September.
This compares to 33.9% in August 2022.
According to the GSS, five categories saw higher-than-average inflation rates in September 2022.
