Research agency, Fitch Solutions, has said the Bank of Ghana will continue its policy rate hikes increasing the benchmark interest rate to 27% by the end of 2022.
The research firm believes increasing the prime rate to 27% will stimulate capital inflow and provide support to the exchange rate and also allow the cedi to depreciate at a lower pace.
However, this expectation is based on a scenario that, Ghana will reach a deal with the IMF program by the 1st Quarter of next year, 2023. So far this year, the Bank of Ghana has increased the policy rate by some 11% to reach 24.5%
Speaking in an interview, Charles Yeboah of Fitch Solutions said; “Given the high inflation rate, Fitch Solutions expects the Bank of Ghana to tighten monetary policy as a condition of the International Monetary Fund (IMF) deal”.
Meanwhile the Monetary Policy Committee of the Bank of Ghana is expected to commence its quarterly review of developments in the economy from November 23, 2022.
The Monetary Policy Committee after its deliberations will announce a new policy rate on Monday, November 28, 2022.
Commenting on the depreciation of the cedi, Fitch Solutions asserts the local currency will continue to depreciate into the first quarter of 2023.
This is premised on the research agency’s assertion that previous periods of significant exchange rate weaknesses in the country lasted for 12-14 months.
Fitch Solutions in its recent report on Ghana’s political stability noted, significant capital and financial account outflows caused by weakening investor sentiments will continue to weigh on the cedi.
According to the research agency, the continuous depreciation of the cedi will keep inflation high, weighing on living standards of citizens.
“Given that inflation is primarily driven by currency weakness, we expect price growth to remain elevated in the months ahead. Indeed, significant capital and financial account outflows caused by weakening investor sentiment will continue to weigh on the currency.
“Our view is further informed by the fact that previous periods of significant exchange rate weakness in Ghana all lasted roughly 12-14 months, suggesting that the cedi will continue to depreciate into the Q123 (the current sell-off started in January 2022). This will keep inflation high, weighing on living standards and eroding support for the government,” it quipped.
The continuous depreciation of the cedi into Q1 2023, as forecasted by Fitch Solutions is justified given the fact that the cedi within the last quarter of every year loses in value to the dollar given the high demand for the US dollar by businesses and importers for repatriation of profits to parent companies outside the country as well as imports for the Christmas and New Year festivities respectively.
At the moment, the year-to-date depreciation of the cedi against the dollar is pegged around 52% with the cedi going for GHS 14.60 to a dollar and GHS 16. 65 pesewas to the pound.
