In brief
- The Monetary Policy Committee (MPC) under the new Governor of the Bank of Ghana commenced its monetary policy signalling with a hawkish posture in March 2025 and a promise of policy reforms ahead. Having signalled its discomfort with the elevated inflation profile at the start of the MPC meeting, the Committee unsurprisingly concluded with a majority decision to hike the policy rate by 100bps to 28.0%. The MPC also introduced a 273-day instrument as an additional liquidity management tool as the authorities seek to mop-up the excess liquidity from the fiscal impulse of 2024.
- The tightening bias belatedly aligns with our hawkish call at the January 2025 meeting. The combined effect of the 100bps policy rate hike and the extra duration liquidity mop-up appears consistent with our call for a 200bps rate hike in January 2025, albeit belatedly delivered in March 2025. In our assessment, the Committee appeared visibly concerned about the inflation risk from the liquidity overhang, occasioned by the unexpected fiscal expansion in 2024 and the likely 2nd round effect of supply-side shocks to food prices.
- We do not rule out a first cut in 3Q2025. Reassuringly, the MPC left an open door for a gradual easing in the policy stance as inflation becomes firmly anchored. We think this tone reflect the authorities’ confidence for a faster disinflation in the months ahead as the tighter monetary stance complements the ongoing fiscal disinflation measures. This aligns with our expectation for a faster disinflation in the months ahead, which would likely widen the real policy rate from its current 4.9% to over 8.0% by June 2025. Consequently, we maintain our expectation for a first rate cut at the July 2025 MPC meeting.
- T-bill rates will find a floor from policy rate hike but not an upside catalyst. The downturn in T-bill yields has dampened the appeal of the Treasury securities in favour of OMO Bills which offer the policy rate. We thus expect the 100bps hike in the policy rate to sustain attraction for the OMO securities, draining demand for T-bills and limiting the downside for yields. However, the ongoing squeeze on public spending will ease the financing requirement and avert an upward reversal in T-bill rates, barring FX shocks.
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