Fitch Solutions forecasts another 100bps cut in policy rate in next MPC meeting
Research firm, Fitch Solutions, is forecasting another 100 basis points (1%) cut in Ghana’s monetary policy rate by the Monetary Policy Committee (MPC) in its next meeting scheduled in March 2024.
The Bank of Ghana (BoG) on January 29, 2024, reduced its monetary policy rate (base rate) by 100bps from 30% to 29%.
The decision by the Committee to cut the policy rate, Governor Ernest Addison noted, was on the back of the steady decline in headline inflation from the December 2022 year high of 54 percent to 23 percent in December 2023.
Asserting that inflation expectations are well anchored with the outlook for inflation being continued disinflation as previous policy tightening effects impact both headline and core inflation.
According to Fitch Solutions, inflation will remain on a downward trend over the coming months, in part driven by statistical base effects and the lagged impact of monetary tightening.
Moreover, a gradual improvement in investor sentiment and a $600m IMF disbursement will keep the exchange rate stable at roughly GHS12.0/USD throughout Q1 2024, only slightly weaker than the average of GHS11.8/USD recorded in the year-earlier period.
As such, price pressures stemming from imported goods and services will remain limited over the coming months, supporting the ongoing disinflationary trend.
“That said, inflation will remain above the 20.0% mark ahead of the March MPC meeting, prompting a vigilant approach from central bank policymakers. In the coming months, price pressures will moderate at a much slower pace compared to Q423.
“This is partly due to the uptick in global oil prices caused by hostilities between Israel and Hamas, and a sharp increase in global shipping costs caused by rising tensions in the Red Sea. Consequently, inflation rates are set to stay well above the levels preferred by the BoG, with significant upside risks.
“This context underpins our expectation that the central bank will not opt for a larger rate cut at the March MPC meeting,” Fitch Solutions stated.
“Beyond the March MPC meeting, we anticipate that the BoG will lower interest rates by a cumulative 600 basis points to 22% by the end of 2024. We project that inflation will remain on a downward trajectory through Q2 2024-Q4 2024, ending the year at 13.5% y-o-y (inflation will average 17.3% over the full year), giving central bank policymakers space to lower the benchmark interest rate,” it added.
