Investors seek positive returns as money market yields rise
Investors are requesting for positive real returns on short-term securities as yields on money market instruments rise.
The request for positive real returns according to investment advisory firm, Constant Capital, is despite tight liquidity conditions.
The investment firm asserts that it expects the Bank of Ghana to increase the policy rate by 200 basis points next week and a further increase in July 2022 to mop up excess liquidity from circulation, whilst reducing inflation.
“Within the context of the persistent inflationary environment, we think the BoG will tighten the MPR further as the MPC’s aggressive stance in March 2022 signaled a firm willingness to tighten to rein in inflation. Our expectation is a hike of at least 200 basis points at the May 2022 meeting with another potential increase in July”.
It however said, “we perceive further upside risks to inflation in May 2022 and through quarter 2, 2022. Although Cedi depreciation pressures have waned as US dollar liquidity gradually returns to the market, the ongoing war between Russia and Ukraine could sustain higher food and energy costs”.
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Additionally, the report said the implementation of the 1.5% Electronic Transaction Levy and the recent 20% increase in public transport fares will pose further upside risks to prices going forward.
“With the latest inflation print at 23.6%, the spread between inflation and money market rates has widened further while the real policy rate remains negative”.
Headline inflation rate for the month April 2022 was 23.6%.
Compared to that of the previous month, headline inflation is 4.2 percentage points higher than the 19.4% recorded in March 2022.
The month-on-month inflation between March 2022 and April 2022 was 5.1%.
Four divisions (Transport, Household Equipment and Routine Maintenance, Food and Non-Alcoholic Beverages, and Housing, Water, Electricity, Gas and Other Fuels) recorded inflation rates above the national average of 23.6% with Transport (33.5% ) recording the highest inflation for the inflation rates of all divisions).
The Central Bank on Monday, May 23, 2022, is expected to announce a new policy rate.
Given the rising rate of inflation, the new policy rate to be announced is expected to be an increase on the current policy rate of 17%.
