Monetary Policy Outlook: No immediate rate hike expected despite rising inflation – GCL Research
Courage Boti, Research Lead at GCB Capital, has offered valuable insights into the potential ramifications of Ghana’s recent uptick in headline inflation on the country’s monetary policy. Despite the 100 basis point increase to 42.2% in May 2023, Boti does not envision an immediate hike in the policy rate.
His analysis suggests that the underlying inflationary pressures have shown a broad decline, suggesting that the inflationary ‘noise’ may be more prevalent in the headline figure rather than core inflation.
Boti draws attention to several factors that contribute to this outlook. Firstly, he highlights the predictable path of petroleum prices, which, despite global volatility, have exhibited a relative stability. This stability helps dampen inflationary pressures stemming from the energy sector, thus exerting a mitigating effect on the overall headline inflation figure.
Additionally, Boti emphasizes the resilience of the Ghanaian Cedi, which has demonstrated a relative steadiness in the face of market uncertainties. A stable currency serves as an anchor against imported inflation, thereby tempering potential price increases in various sectors of the economy.
Moreover, Boti underscores the easing pressures originating from other sources of inflation. This observation suggests that while the headline inflation rate may experience short-term fluctuations, the underlying trend in core inflation remains relatively subdued. These nuanced differentiations between transitory price movements and sustained inflationary pressures are crucial for policymakers in making informed decisions regarding the monetary policy stance.
Looking ahead, Boti emphasizes the significance of the tighter fiscal and monetary controls that have been implemented as part of the International Monetary Fund (IMF) program. These measures are designed to address fiscal imbalances and enhance the efficacy of monetary policy. Boti asserts that the prudent fiscal measures, combined with a focused monetary policy stance, should act as robust anchors for the disinflation process in Ghana. As the IMF program takes effect, it is expected to contribute to the overall stability of the economy, thereby helping to manage inflationary risks.
However, Boti does caution that interest rates may remain elevated in the near term due to heightened uncertainty and increased demand for short-term funds. The cautious approach of market participants, driven by the need to navigate potential risks and uncertainties, has led to a preference for shorter-term borrowing. This preference has implications for the overall cost of borrowing, potentially keeping interest rates at elevated levels in the immediate future.
