In brief
- The Monetary Policy Committee (MPC) of Ghana’s Central Bank expectedly left the policy rate unchanged at 30.0% during its final MPC meeting for 2023.
- The MPC’s “hold” decision firmly aligns with our views on the near-term outlook for the policy rate as both core and headline inflation remain at over 3.5x the upper target of 10.0% as of October 2023. Furthermore, we opine that the authorities require a positive real policy rate to achieve a sufficiently tight monetary policy stance. Our forecast decline in inflation, potentially below 29.0% in November 2023, makes it possible to restore positive real rate within the next month at the prevailing 30.0% nominal policy rate.
- Although the policy rate decision was roundly expected, the MPC surprised the market with additional policy measures to tighten the prevailing interbank liquidity conditions. Overall, these additional measures will tighten local currency liquidity on the interbank market, giving a hawkish feel to the decision to “hold” the policy rate unchanged at 30.0%.
- Using data on banking sector portfolio as of October 2023, we opine that the hike in the Cash Reserve Ratio (CRR) will mop up at least GHS 3.2bn of extra interbank liquidity in the base case scenario. Over the next 3-months, we estimate the cumulative Treasury bill maturities at GHS 42.0bn with an average weekly refinancing obligation of GHS 3.2bn. In view of this, the liquidity-restraining impact of the CRR hike could partly weaken investor demand and introduce some near-term stickiness in yields and prevent a sharp decline as the Treasury faces refinancing risk.
- The BOG appears cautiously bullish on the near-term outlook for FX due to the steady rebuild in forex reserves, mainly supported by the ongoing “Gold-for-Reserves” programme. We generally align with the BOG’s cautiously optimistic near-term FX outlook as we expect USD 300mn DPO facility from the World Bank in December 2023 in addition to the imminent cocoa loan. We also opine that the latest decision to hike the CRR will tighten Cedi liquidity, limit the FX demand pressures and anchor the near-term outlook. We are, however, mindful of the likely seasonal pressures in 1Q2024 and potential election-related uncertainty in the coming year.
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