In brief
- The Bank of Ghana delivered a surprise increase in the policy rate at the Mar-2023 MPC meeting, hiking the rate by 150bps to 29.5% in addition to a 200bps increase in the Cash Reserve Ratio on local currency deposits to 14.0%
- With the impending legislative approval of new tax measures, and the excess liquidity support to counter the shocks from the DDEP, we believe the authorities are mindful of upside risk to the downwardly sticky inflation rate. The Committee revised its end-2023 inflation forecast to 29.0%, up from the previous forecast of 25%, underscoring the need for a policy rate hike to re-align with the new 12-months outlook on inflation.
- We estimate the 200bps hike in the CRR on local currency deposits to drain at least GHS 2.0bn from the interbank market. Consequently, we foresee moderation in appetite for T-bills as the lower yield on government securities pales into unattractive territory amidst the allure of 29.5% on the BOG bills. This will undermine the Treasury’s capacity to meet its sizeable weekly auction targets while sustaining the aggressive yield suppression.
- Fiscal adjustment was strong in December 2022. However, we observed that the adjustment was solely driven by festivity-induced growth in revenue collection and the enforcement of tax compliance through retrospective tax liability assessments while the weak spending controls remain the fiscal Achilles heel.
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