In brief
- The Monetary Policy Committee (MPC) of Ghana’s Central Bank kept the policy rate steady at 29.0%, in line with our expectation for the March 2024 meeting. Given that our year-start forecast was a “Hold” in January and a “Cut” in March 2024, the surprise rate cut in January 2024 flipped our March expectation to a “Hold” amidst the FX pressure. Inevitably, the Committee leaned in the same direction at the March MPC meeting, nudged by the seeming elevation in the near-term risk to CPI inflation.
- However, the tone of the press statement does not suggest an overly concerned MPC on the outlook for inflation as the authorities reiterated “close monitoring” of the “slightly” increased upside risk to inflation. Reviewing the Monetary Policy Consultation Clause under the IMF programme, our projected jump in the March 2024 inflation to 26.0% indicates virtually no risk of breaching the IMF inflation target for March 2024. Consequently, we think the Committee is probably justified to be less concerned but more strategic in its policy move to avert losing the grip on the inflation wheels.
- In addition to the “hold” decision on the policy rate, the authorities announced a calibration of the minimum Cash Reserve Ratio (CRR), introducing a three-level CRR, subject to the loan-to-deposit ratio (LDR) of commercial banks. Essentially, we observed that the lower the LDR of banks, the higher would be the CRR requirement up to a maximum of 25.0% with effect from April 2024.
- Given the current industry average LDR of 33.3%, which is below 40.0%, we opine that the average industry CRR will likely increase by between 5.0% – 10.0% if the status quo is maintained until April 2024. In our estimation, this could translate into extra tightening of Cedi liquidity by between GHS 11.2bn and GHS 22.4bn.
- We continue to delay revision to our FY2024 USDGHS forecast with the recent tightening as a crucial anchor to reduce the imbalance in the FX market. However, we expect the potentially tighter liquidity from the CRR calibration to weaken the bid sizes at the weekly T-bill auctions towards the low-GHS 4.0bn area with a likely slowdown in the pace of yield decline.
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