Ranking Member on the Finance Committee in Parliament, Dr. Cassiel Ato Forson has cautioned the Bank of Ghana (BoG) against using the country’s net reserves to salvage the current economic crisis.
According to him, this would be a “disaster staring in the face of the country”.
Speaking on Top Story, Monday, Dr. Ato Forson explained that any attempt by the central bank to use the net reserves would lead to a cascading drop in the country’s currency.
“When the investors are to see that the reserves keep going down, then they would be rushing to exit and if they exit and obviously the currency is going to drop and drop and drop until it falls. That is what I’m worried about,” he said.
The Monetary Policy Committee of the Bank of Ghana after a meeting on Monday increased the policy rate – the rate at which it lends to commercial banks – by 2.5% per cent to 17%.
This is the first time since November, 2018 that the rate has gone up so high.
The decision is due to the current pressures on the economy, the uncertainty about the economic outlook and developments in Russia – Ukraine, which has pushed fuel prices up astronomically.
The move to adjust the base lending rate of the Central Bank is expected to control the rising inflation and check the rapid depreciation of the cedi.
This comes in the face of the raging economic challenges which compelled government to hold a crunch cabinet meeting to find solutions to the economic crisis.
Reacting to the recent intervention by the central bank, Dr. Ato Forson said the BoG’s effort is a bit late.
Referencing a reduction in the international reserves in December last year by approximately $700 million and another $600million loss in January this year, the former Deputy Finance Minister noted that the central bank should have instituted these interventions earlier.
“They could have given some hope to investors. Today, we are losing reserves at a very alarming rate. My only concern is that the package that the central bank has actually provided will not be enough in the sense that the problem, the concerns of the investors who are actually repatriating and taking their money away, are actually because of the fiscal situation. So I want to see what the fiscal authorities will do and as to whether that information would be enough for the market to respond appropriately or not,” he added.
Meanwhile, the Finance Minister, Ken Ofori-Atta, is expected to address the nation this week to communicate key measures taken by the government amid the current challenges.
A statement issued by the Information Ministry hinted that the update will include the reopening of land borders, the easing of Covid-19 restrictions, and measures to arrest the depreciating cedi.
“President Akufo-Addo approved a number of far-reaching measures aimed at mitigating the depreciation of the cedi, ensuring expenditure discipline and providing relief in the face of the global fuel price hikes and inflation as well as ensuring that priority programmes meant to grow the economy are protected.
“Government appreciates the efforts of all who contributed to a successful retreat and looks forward to the support of all Ghanaians in implementing the agreed measures,” the statement added.