MPC likely to hold policy rate steady at 29% in March
GCB Capital, in its latest analysis, projects a notable uptick in headline inflation for March 2024, attributing it to temporary factors. The anticipated surge, expected to reach around 26%, stems largely from base effects following a prior year’s contraction in the Consumer Price Index (CPI).
Despite this projection, GCB Capital emphasizes the transient nature of this increase, foreseeing a resumption of the disinflation trend from April 2024 onwards.
In light of this inflationary outlook, GCB Capital recommends a measured and appropriately tight monetary policy stance, urging the Monetary Policy Committee (MPC) to maintain the policy rate at its current level of 29% during its March 2024 meeting.
This cautious approach aims to effectively navigate the anticipated inflationary pressures and steer inflation downward.
“With the sharp increase in headline inflation envisaged in March 24, which is to be transitory, we tip the monetary policy path to remain cautious and appropriately tight. Thus, we expect the Monetary Policy Committee (MPC) at its Mar-24 monetary policy meeting to hold the policy rate at 29% to effectively steer inflation downward, deferring the next rate action to the May 2024 monetary policy window,” it said.
However, amidst the temporary inflationary spike, GCB Capital underscores several immediate risks to inflation dynamics. These include concerns surrounding Cedi depreciation and its potential impact on fuel prices, exacerbated by ongoing geopolitical tensions affecting crude oil supply.
Additionally, the looming specter of fiscal overruns in the lead-up to the 2024 elections poses a further risk, potentially reigniting demand-driven price pressures.
“We flag the simmering Cedi depreciation amidst immediate liquidity concerns and its potential passthrough to ex-pump fuel prices in the wake of the lingering crude oil supply concerns due to Geopolitics as an immediate upside risk to inflation through the transport channel and general market prices. We also reiterate the upside risk to inflation from potential fiscal overruns in the run-up to the 2024 election, which could reignite demand-driven price pressures in 2H2,” it added.
Looking ahead, while GCB Capital anticipates a period of inflationary turbulence in the short term, it underscores the importance of maintaining a vigilant stance to mitigate risks and ensure the stability of the broader economic landscape.
