Gains In Inflation Control Often Come At A Significant Cost -Asiama

The Governor of the Bank of Ghana, Dr Johnson Pandit Asiama, has highlighted the difficult policy choices Central banks must make as they work to stabilise economies, stressing that gains in inflation control often come at a significant cost.

Speaking at the Kwahu Business Forum Governor’s Roundtable on Sunday, April 5, 2026 Dr Asiama reflected on Ghana’s economic performance in 2025 and its implications for businesses.

He noted that while the country recorded strong macroeconomic indicators, including a stable exchange rate and declining inflation, these achievements required substantial intervention by the Central bank.

“The cedi is stable and under control,” he said, adding that policymaking at central banks is always about balancing competing priorities.

According to Dr Asiama, one of the most critical challenges is finding the right mix between controlling inflation and supporting economic growth.

He explained that although 2025 was a year of improved economic performance, it came at a high financial cost to the central bank.

“Last year was good, but expensive for the central bank. It took significant resources to mop up excess liquidity and bring inflation down to 5.4 per cent by December 2025,” he said.

He explained that the Bank’s monetary operations, particularly efforts to reduce excess money in circulation, were essential to stabilising prices, even though they placed pressure on the institution’s balance sheet.

However, Dr Asiama expressed optimism about the outlook for 2026, noting that maintaining low inflation would require fewer resources going forward.

“Given where inflation was at the end of 2024 and where it is now, it will not take the same level of effort to keep it low and stable,” he said.

The Governor also underscored the importance of a strong financial sector in supporting economic growth.

He assured the business community that the central bank remains committed to strengthening the banking system to improve access to credit. “When banks are strong, they can lend more to businesses,” he noted.

Central banks play a crucial role in maintaining economic stability, primarily by keeping inflation low and predictable.

However, the tools used to achieve this—such as open market operations and the issuance of central bank bills often come at a cost.

In Ghana’s case, instruments like Bank of Ghana bills, which are purchased by commercial banks, became particularly expensive in 2025 due to the high policy rate environment. This contributed to a significant increase in the cost of liquidity management.

Ghana’s inflation rate declined sharply from 23.8 per cent in December 2024 to 5.4 per cent by December 2025, a drop that reflects the scale of intervention required.

Despite the financial burden, central banks are compelled to act, as rising inflation erodes purchasing power and reduces real incomes.

Dr Asiama reiterated that such heavy costs are unlikely to recur in 2026, given the current low inflation environment now below 4 per cent.

With price pressures easing, the central bank is expected to maintain stability with less aggressive and less costly interventions.

The outlook, he suggested, points to a more sustainable path for monetary policy, offering some relief to both the central bank and the broader economy.

 

 

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