According to the institute, the significant gap between inflation and the policy rate had compelled banks to access Central Bank funds at cheaper rates and on-lend to the government at higher rates, which was impacting negatively on the economy.

“The decision regarding the PR is rather tricky and challenging at this time. We note that a significant gap has opened between the PR, at 24.5 per cent, and inflation, at 40.5 per cent. This is not uncommon. However, it is rather unusual, especially in the Ghanaian context, where the real PR has been, more often than not, positive. Similarly, the PR has fallen far behind Treasury Bill rates, which are over 35 per cent,” it stated in a statement signed by the Director of Research, Dr John Kwakye.

“This has caused misalignment between the rates and increased the potential for “round-tripping,” to the extent that it is possible for banks to access Central Bank funds at cheaper rates and on-lend to the government at higher rates. It is also the case that major economies, such as US and UK, have further tightened their policies, increasing the pressure on the currencies of emerging markets and developing countries,” it explained.

Furthermore, the IEA said pressure would mount on the PR since the Bank of Ghana and government were not implementing adequate intervention measures to target directly the underlying causes of inflation.

“Already, interest rates have reached prohibitive levels and hurting the real economy as the cost of doing business has escalated. Reducing the growth projection for 2022 from the original 5.8 per cent to 3.7 per cent in the Mid-Year Budget attests to a slowing economy,” it said.

Notwithstanding, the IEA said inflation was of greater concern and must be the first target of policy, noting “our view is that inflation may go up further in November (2022), reflecting the pipeline pressures, before possibly slowing in December (2022), reflecting the slight decrease in fuel prices and a measure of stability on the foreign exchange market.”

Again, it said some further increase in the PR might be necessary to consolidate the incipient stability and reassure the markets of the strong commitment to fighting inflation.

“From that standpoint, I expect the PR to be increased by 200 basis points to 26.5 per cent,” it said.

The IEA also expressed happiness that then Bank of Ghana had initiated actions to check some of the abuses of the forex rules and regulations.

This follows calls on the Central Bank to enforce the forex rules, including limits on forex carry-on by travellers, dealings in forex, pricing of goods and services in forex, transfers through banks and unauthorised transfers through forex bureau and other channels.

Furthermore, following the President’s declaration to prioritise imports and restrict importation of certain items, the BoG has followed up by announcing that it will no longer provide forex for importation of those items, which include rice, poultry, vegetable oil, toothpaste, pasta, fruit juice, bottled water, ceramics and tiles.

The IEA stressed that the legitimate question to ask was whether these items would be available in sufficient quantities from local producers, since if shortages should occur, especially ahead of the Christmas period, they could trigger price hikes.

“Given the seasonality of these forex inflows, their disbursement tends to be irregular, which tends to disrupt forex availability and cause volatility in the exchange rate,” it said.