GCB Capital Research forecasts 50-100bps increase in policy rate in September over 60bps rise in July inflation
GCB Capital Research has examined the repercussions stemming from the recent rise in headline inflation during July 2023. The firm offers a multifaceted perspective on the potential trajectory of monetary policy and its resonance on interest rates in the near term.
GCB Capital Research underscores a pivotal consideration which is a prospective escalation in the July inflation metrics could potentially trigger a notable policy response. This could manifest in a consequential upward shift of another 50 to 100 basis points in the policy rate during September 2023. Hence, GCB Capital Research notes that the trajectory of nominal interest rates might retain its elevated posture throughout the third quarter of the year.
The research acknowledges that the current monetary policy rate stands at an already high rate of 30%. This factor, in conjunction with a monetary policy stance that is notably stringent, significantly narrows the space for any further incremental tightening of monetary measures.
GCB Capital Research further underscores the nuanced perspective that, while the Monetary Policy Committee (MPC) remains amenable to intensifying policy measures should inflation assume a menacing spiral, the ultimate impact of such actions on quelling inflation might be circumscribed. Such a move might inadvertently entail implications for constraining economic growth, a concern accentuated within the backdrop of ongoing fiscal consolidation efforts.
A positive aspect highlighted by the research is the commendable frontloaded fiscal consolidation endeavors currently underway. These efforts seamlessly align with the Central Bank’s call for a synchronized fiscal policy approach to combat the upward trajectory of inflation.
The current landscape, as noted by GCB Capital Research, underscores the intricate fabric weaving inflationary trends, monetary maneuvering, and their wider implications. As markets monitor these dynamics, the balancing act of policy formulation to mitigate inflationary pressures while nurturing economic growth remains a focal point of interest and contemplation.
Inflation inch up to 43.1% in July
For the third consecutive month since May-23, Ghana’s year-on-year headline inflation increased by 60bps from Jun-23 to 43.1% y/y in Jul-2023, sustaining the simmering underlying inflation pressures.
Food inflation continued higher, climbing to 55% y/y in Jul-23 (+80bps from Jun-23), with the food and non-alcoholic beverages division alone contributing 54.5% to the July-23 overall inflation print. Four sub-classes of the food basket, comprising vegetables, readymade foods, cereals, and fish & sea foods, with a combined weight of 32.9% recorded average inflation rates of 52.10% in Jul-23, remaining the main drivers of inflation from the basket.
Non-food inflation, on the other hand, changed course for the first time in eight (8) months, creeping 40bps higher to 33.8%. On a month-on-month basis, the inflation outturn was mixed. Whereas the overall and non-food inflation reversed course after just one month of decline and increased by 40bps and 80bps to 3.6% and 3.4%, respectively, food inflation inched 10bps lower to 3.8%, reflecting the contrasting forces underlying the run of inflation.
The July 2023 inflation numbers justify the Monetary Policy Committee’s decision to raise the policy rate by 50bps to 30% following a slightly higher elevated profile, which the committee fears could become embedded in
underlying inflationary pressures. The resurgent food price pressures, its lagged impact, and the lagged effects of the revenue measures and tariff adjustments underpin the simmering price pressures despite the relative stability from the cost-push drivers of inflation.
