GCB anticipates rise in inflation for fourth consecutive month
In August, inflation in Ghana is poised to surge once more, as the nation grapples with a sustained reliance on short-term funds by the Treasury, according to a report by GCB Capital Research. The anticipation of higher inflation comes on the heels of an ongoing trend reversal in inflationary pressures since May 2023.
GCB Capital Research, ahead of the eagerly awaited August 2023 inflation data release scheduled for Wednesday, expects that Ghana’s headline inflation will extend its upward trajectory for the fourth consecutive month. The driving forces behind this inflationary trend reversal have been multifaceted, with factors such as new revenue interventions, upward adjustments in utility tariffs, and persistent pressures on food prices playing significant roles.
Although the influence of the revenue measures may be diminishing, the relentless climb in food prices has sustained the upward pressure on inflation, countering the potential benefits of a favorable base effect that commenced in May 2023.
Responding to the elevated risks associated with high inflation, negative real returns on fixed-income investments, and lingering market uncertainties, investors have consistently sought higher yields at T-bill auctions. This has partially reversed the interest savings realized following a significant reduction in T-bill yields post-DDEP.
The Treasury’s strategy of yield compression post-DDEP successfully reduced the interest rate on the 91-day tenor by approximately 17%, moving from 35.75% pre-DDEP to 18.53% by March 20, 2023. However, beyond April, the continued reliance on money market borrowing, coupled with limited external funding sources, has sustained the uptick in yields. Investors have demanded commensurate compensation to account for the prevailing macroeconomic and fiscal uncertainties in the short term.
Currently, the average weighted T-bill clearing yields span a range between 27.8% and 32%. These rates are likely to persistently climb as long as inflation remains a primary concern and the Treasury maintains its appetite for short-term funding.
