How we fared in 2023

• The 2023 policy framework in Ghana aimed at restoring macroeconomic stability with a tightly complementary fiscal and monetary stance under a 3-year IMF-supported reforms agenda. Against this backdrop, the policy rate and interest rates on T-bills remained generally sticky around the 30.0% handle while the low-coupon restructured Treasury bonds struggled for price discovery and liquidity.
• The Ghanaian Stock Exchange (GSE) outperformed expectations with a year-to-date gain of 29.7% on the composite index as of end-November 2023. The GSE financial stock index (GSE-FSI) bottomed-out in August 2023, pivoting upwards to post a 20.4% gain in the 3-months to end-November 2023. Given the dearth of activity in the bond market, pension funds increased their stock market participation, accounting for 17.0% (GHS 196.3mn | +23.0% y/y) of value traded on the stock market in 10-months of 2023 (vs 6.0% in the same period of 2022).

What we see ahead in 2024

• Inflation will continue its downturn in 2024, but with a non-linear trend while the prevailing tight monetary stance and the ongoing IMF programme act as key policy anchors. We anticipate an upside detour in March 2024, mainly due to unfavourable base drift effect given the unexpected decline in the CPI level in March 2023. Against the counteracting forces to inflation in 2024, we project Ghana’s FY2024 annual headline inflation at 16.1% ±1.0pp (vs GOG Target: 15.0%).
• The Ghanaian Cedi will benefit from a dovish US FED and the recent monetary policy decisions on banks’ Cash Reserve Ratio but the weak forex reserve will leave the local currency vulnerable. The authorities’ target to achieve an improved cover of 1.7 months of imports gives us little comfort about the shock-absorbing capacity of external buffers. We expect the potential safe-haven demand for forex, associated with election-related uncertainty, to exert a modest depreciation pressure on the Ghanaian Cedi given the constrained intervention capacity of the Central Bank.
• Our downside view on inflation in 2024 creates a pathway for nominal yields on T-bills to decline amidst monetary policy pivot to an easing bias in the coming year. However, we opine that the pace of yield compression in 2024 will be determined by a number of factors including the pace of disinflation, the risk to FX stability with resultant policy rate positioning, and the public sector domestic borrowing requirements.