Headline inflation on track to surpass IMF’s end-2023 target, reports IC Research
Ghana’s inflationary trajectory has garnered attention, particularly with expectations that it will surpass the International Monetary Fund (IMF) target for end-2023 inflation, as highlighted by IC Research.
The November 2023 inflation figure stood at 26.4%, positioning headline inflation within the stipulated bands of the IMF programme’s Monetary Policy Consultation Clause. Specifically, this figure aligns with the 27.4% inner band and the 25.4% outer band of the lower limit, signaling a potential overperformance relative to the IMF’s central target of 29.4% for the year’s end.
IC Research emphasizes that Ghanaian authorities are poised to exceed the IMF’s target, possibly gravitating towards the lower boundary’s outer band. Furthermore, IC Research’s updated Consumer Price Index (CPI) forecast for December 2023 projects a potential inflation rate of 24.2%, underscoring the nation’s commendable strides in managing inflationary pressures.
Shifting focus to monetary policy measures, the Bank of Ghana introduced pivotal changes during its November 2023 Monetary Policy Committee (MPC) meeting. Specifically, it unified the cash reserve requirement for all bank deposits, mandating that they be held in cedi-equivalent. This move concurrently elevated the cash reserve ratio to 15.0%, reflecting the central bank’s proactive stance to regulate liquidity and enhance monetary stability.
Delving into the implications of this policy adjustment, IC Research’s impact assessment elucidated its ramifications on the interbank market dynamics. Notably, the monetary policy decision facilitated a contraction of ¢4.6 billion from the interbank market, with banks’ holdings of Bank of Ghana bills diminishing to ¢28.1 billion by December 13, 2023, down from ¢32.6 billion pre-MPC deliberations.
Concurrently, this monetary tightening catalyzed an upward recalibration of yields across treasury bills, marking a reversal from three consecutive weeks of declining yields across the maturity spectrum. Despite these developments, IC Research sounded a note of caution, highlighting the Treasury’s predominant reliance on T-bills as a financing conduit for the 2023 and 2024 budgetary deficits. This concentrated reliance could potentially exert upward pressures on yields, warranting vigilant monitoring and strategic diversification.
Nevertheless, IC Research tempered this concern by positing that the pronounced disinflationary trends observed could alleviate these pressures, fostering a modest downside risk for yields in subsequent periods.
As Ghana navigates this intricate fiscal and monetary landscape, the interplay between inflation dynamics, monetary policy adjustments, and fiscal strategies will invariably shape its economic trajectory and resilience in a global context.
