BoG holds emergency MPC meeting today; Goldman Sachs expects 2% hike in policy rate
The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) today, commences its earlier announced emergency meeting.
Per a statement issued by the Central Bank, the emergency MPC meeting is to review recent developments in the Ghanaian economy.
The move by the Committee, is believed to be mainly the result of the continuous increments in the country’s headline inflation, given that the use of monetary policy tools such as hikes in the Central Bank’s prime rate has failed to curtail increments inflation and revert it to the Bank’s medium target band.
Other pertinent issues such as the depreciation of the cedi as well as measures to check the country’s declining foreign reserves will also feature in the Committee’s discussions and review of the economy.
US Investment Banking Giant Goldman Sachs is projecting at least a 200 basis points hike in the policy rate to 21 percent from the current rate of 19 percent.
The forecast by the Economic Research Wing of Goldman Sachs follows the announcement of the emergency meeting by the MPC.
The Bank in its advice to investors noted that the move by the Bank of Ghana will be influenced by the fact that the central bank may want to take some extra measures to deal with the current pressures on the Ghana cedi as well as the rising inflation rate.
According to the Goldman Sachs “We expect the MPC to announce a 200bp policy rate hike to 21% and see a meaningful upside risk to this forecast, given the extent of FX and domestic financing pressures”
The Bank of Ghana at its last meeting in July 2022 left the rate unchanged at 19%, citing “deceleration” of the rate of inflation and concerns over economic growth.
The Bank of Ghana, has since the end of 2021 increased the Policy Rate by some 550 basis points to try and contain the rising inflation rate.
The emergency meeting is coming after an acceleration in the pace of depreciation of the Cedi in the past two weeks (almost 10% vs. the USD), amounting to a cumulative 50% currency depreciation year-to-date.
Goldman Sachs is of the view that inflation and financial stability risks stemming from this FX weakness combined with the challenging domestic financing environment for the government — which has led the BoG to begin monetising the deficit — have prompted the call for this meeting.
Goldman Sachs is however worried about the commitment of the Ghanaian authorities to an IMF program, based on their observation after their recent visit to Ghana, “In our recent trip to Accra, one notable observation was the authorities’ perceived lack of urgency in concluding programme talks with the IMF (with locals expecting a 6-9 month timeframe), despite intensifying BoP, FX and fiscal financing pressures” it added in its advice to investors.
The Investment Banking Giant was however worried about the delay in reaching an IMF deal might not be good for the economy.
“We have argued that a delayed conclusion creates the risk of further deficit monetization by the BoG,” it added.
