Economists hold widely divergent views as to whether Ghana will continue tightening interest rates with the consumer inflation rate on a downward trajectory yet remaining at elevated levels.
(Bloomberg) — Economists hold widely divergent views as to whether Ghana will continue tightening interest rates with the consumer inflation rate on a downward trajectory yet remaining at elevated levels.
Half of the eight economists polled by Bloomberg predict the monetary policy committee will raise the rate by one percentage point to 29%, one expects a cut of the same magnitude and three expect no change. Borrowing costs have more than doubled since September 2021 in an attempt to tame price pressures and the worst slide in the nation’s currency in decades.
The inflation rate, though more than five times the 10% ceiling of the central bank’s target range, has dropped 1.9 percentage points in each of the past two consecutive months after reaching a record high of 54.1% in December.
“Inflation has peaked and is slowing little by little, so at this point the MPC only has to pause the hiking cycle,” said Courage Martey, an economist at IC Securities, an Accra-based brokerage and asset-management firm. In addition, “the cedi has shown some stability against the dollar” and there is no evidence of immediate price pressures that would warrant any move in rates at this juncture, he said.
The West African nation’s currency went into freefall last year amid concern that Ghana wouldn’t be able to settle its debts. The cedi stabilized after the government clinched a staff-level agreement with the International Monetary Fund in December for a $3 billion bailout to help stabilize the state’s finances and has traded at about 12 to the dollar since January.
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Ghana is in talks with international and bilateral creditors to restructure about $30 billion of public debt, which the IMF estimates reached an estimated 105% of gross domestic product in 2022. The nation has already reorganized 87.8 billion cedis ($7.1 billion) of domestic debt.
“A rebounding cedi and inflation that has slowed for two consecutive months suggest policymakers in Ghana may vote in favor of keeping the key policy rate unchanged at 28%,” said Daniel Kavishe, an analyst at FirstRand Group Ltd.’s Rand Merchant Bank. “However, our base case for the year has been for a 100 basis points increase as real rates remain deeply negative.”
Mark Bohlund, a senior credit research analyst with REDD Intelligence, expects the inflation rate to drop to about 40% in April due to lower fuel prices and base effects, and that the positive outlook could result in rates being cut as soon as Monday.
“A wait-and-see approach could certainly be motivated, but more likely, in my view, is that the Bank of Ghana will see that real interest rates are high” based on the likely inflation rate in a year’s time and opt for a 100 basis-point cut, he said in an emailed response to questions. A sharp drop in Treasury bill rates indicates that the market expects the bank “to start its easing cycle relatively quickly,” instead of waiting to see how the current disinflation process proceeds, he said.
–With assistance from Paul Burkhardt.
(Updates economist survey in first, second paragraphs.)
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