In brief
- As expected, the Bank of Ghana’s MPC delivered a hawkish hold, unanimously retaining the policy rate at 28.0% despite improving disinflation prospects amidst a sharply appreciating Cedi. The MPC also amended the dynamic cash reserve ratio, allowing banks to hold reserves in the same currency as their deposits, effective 5 June 2025, while maintaining the linkage to loan-to-deposit ratios.
- The Committee’s decision aligns with our expectation as we think a tighter-for-longer hawkish grip on Cedi liquidity is necessary to quicken the pace of disinflation. Despite three consecutive declines, food inflation (25.0% in April) remains exposed to supply-side shocks, especially as the planting season progresses. This underscores the risk of second-round price shocks if liquidity is eased. Moreover, the slower decline in core inflation relative to headline inflation in March and April signals persistent underlying price pressures, justifying continued tight stance to enable the pass-through effects of the Cedi’s appreciation and support the disinflation path.
- Despite the sharp nominal appreciation of the Cedi since April 2025, the Bank of Ghana remains calm, anchored by a favourable Real Effective Exchange Rate (REER) and improved external balances. As of April, the REER Index stood at 136.4pts, reflecting a real depreciation in 4M2025 despite a 3.4% nominal gain against the USD. This was due to favourable currency movements compared to key trade partners, preserving trade competitiveness and justifying the authorities’ confident stance. However, with the broad-based Cedi rally intensifying in May, we think the risks of REER appreciation has heightened. Nonetheless, expectations of faster domestic disinflation will likely align with the nominal exchange rate gains and support a generally favourable real exchange rate.
- Ghana’s external balances have strengthened significantly, offering key support for the Cedi. As of April 2025, the trade surplus rose sharply to USD 4.1bn (4.7% of GDP), up from USD 0.8bn a year earlier, driven by surging gold and cocoa export revenue on the back of rising global prices. The current account surplus reached 2.4% of GDP in 1Q2025, with strong possibility to exceed our 7.9% forecast for FY2025 and reinforcing the Cedi through continued reserve accumulation.
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