A Central Bank Fighting Inflation Cannot Make Profit — Economist

A growing public debate over the financial losses recorded by the Bank of Ghana is being reframed by a financial economist, who argues that the outcome reflects a fundamental reality of monetary policy rather than a failure of management.

Dr. Jabir Mohammed, a financial economist at the University of Ghana Business School, maintains that a central bank committed to aggressively reducing inflation cannot simultaneously be expected to operate as a profit-making institution. According to him, the apparent contradiction stems from a misunderstanding of the central bank’s core mandate.

At the centre of the discussion is the Bank of Ghana’s 2025 financial performance, which showed an operating loss of about GH¢15.6 billion. This was largely driven by the cost of policy interventions, particularly the expanded use of Open Market Operations (OMO), a key tool used to control inflation by absorbing excess liquidity from the economy.

Under OMO, the central bank issues short-term instruments to commercial banks and pays interest to withdraw surplus money from circulation. In 2025, expenditure on these operations surged to approximately GH¢16.7 billion, nearly double the previous year’s figure. While effective in tightening monetary conditions, the strategy comes with direct financial costs that are reflected in the Bank’s accounts.

Dr. Mohammed explained that such losses are not incidental but intrinsic to the process of stabilisation. When inflation rises sharply, as Ghana experienced between 2022 and 2023, central banks are required to act decisively to restore price stability. This often involves reducing money supply, raising interest rates, and intervening in financial markets, all of which carry fiscal implications.

“The objective is not to make profit. The objective is to stabilise prices and protect the economy,” he emphasized.

The impact of these interventions is already evident in Ghana’s macroeconomic indicators. Inflation, which previously exceeded 50 percent at the peak of the crisis, has declined significantly into single digits, signalling a restoration of price stability and improved economic confidence.

However, this progress has come at a cost. By design, when a central bank pays interest to absorb liquidity without generating equivalent returns on its assets, it creates a mismatch that translates into accounting losses. Analysts note that this is a common feature of post-crisis monetary tightening across many economies.

Dr. Mohammed further stressed that the alternative to such intervention would have been far more damaging. Allowing inflation to remain elevated would erode purchasing power, destabilise the currency, and undermine economic recovery.

His argument highlights a broader policy trade-off facing Ghana and other emerging economies: the choice between short-term financial losses at the central bank and long-term macroeconomic stability.

In this context, the losses recorded by the Bank of Ghana are increasingly being viewed not as a sign of institutional weakness, but as the financial cost of restoring order to the economy.

Going forward, analysts suggest that rebuilding the central bank’s balance sheet will depend on sustained macroeconomic stability, improved fiscal discipline, and a gradual normalisation of monetary policy conditions.