In brief
- As expected, the Monetary Policy Committee (MPC) of Ghana’s Central Bank voted to retain the policy rate at 29.0%, together with the dynamic Cash Reserve Ratio (CRR) of between 15.0% – 25.0% at the July 2024 MPC meeting.
- Unsurprisingly, the Committee reiterated its expectation for the year-end inflation to land within the target range of 13.0% – 17.0%, maintaining the target range under the IMF Monetary Policy Consultation Clause (IC Insights: 19.3% – 21.3%). Despite expressing its confidence in the disinflation outlook for 2H2024, the MPC rightly flagged the elevation in the upside risk, which has persisted since the assessment in the May 2024 MPC meeting.
- While the decision to maintain the policy rate at the 29.0% level appeared to downplay the upside risk, we think the Committee is leaning on the liquidity squeeze being exerted by the tight CRR stance. In our estimation, the return to disinflation coincided with the hike in CRR for banks in April 2024, which has drained GHS 21.9bn of bank deposit into Reserve Money as of June 2024. We think the MPC rightly observed the CRR-induced progress together with the signalling effect of the high policy rate and is counting on its sustained cooling impact on price momentum in 2H2024.
- We believe that the potential for a relatively stable Cedi in 2H2024 is supported by expected inflows of USD 300.0mn from the World Bank in 3Q2024, IMF disbursement of USD 360.0mn and a likely cocoa syndicated loan in 4Q2024. However, uncertainty related to the upcoming elections in December 2024 could heighten safe-haven demand for forex. Additionally, the Treasury will pay GHS 6.1bn as coupon on the restructured bonds in August 2024 amidst cumulative payment of GHS 1.5bn as part of financial sector bailout in 2H2024. Against the backdrop of election uncertainty, these payments could sustain the robust growth observed in currency outside banks, which keeps us cautious on the FX, inflation, and interest rate path.
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