GhanaInsightsMacroeconomic updateMonetary Policy

28 May 2024

Ghana MPC update: Riding the currency wave

In brief

  • Ghana’s Monetary Policy Committee (MPC) did not surprise with its decision at the May 2024 meeting as the authorities left the policy rate unchanged at 29.0% while maintaining the recently introduced three-tier system of Cash Reserve Ratios (CRR).
  • Throughout 5M2024, our main concern had been the unrelenting depreciation pressure on the Ghanaian Cedi with a potential pass-through to domestic price levels. Unsurprisingly, the Committee maintained the same language from its prior MPC meeting, stressing the slightly elevated inflation profile arising from the FX pressures and adjustments in transport fares. However, the authorities remain confident of containing the end-2024 inflation within the target 13.0% – 17.0% band (IC Insights: 15.9% – 17.9%).
  • As part of the ongoing IMF programme, the Bank of Ghana (BOG) adopted a new FX intervention framework, which defined the conditions and modalities of its FX market support. While this FX intervention framework was not made public, we believe the conditions imposed a restriction on the Central Bank FX sales, given the target to increase net international reserves by at least USD 1.6bn throughout FY2024. This ultimately allowed increased depreciation in line with the excess FX demand.
  • Following the unexpected cut in the policy rate in January 2024, we indicated our deferred inclination to raise our forecast for the USDGHS FX rate as we foresaw strong selling pressure on the local currency. In view of the restrained FX support regime, we raise our forecast for end-2024 USDGHS rate to 15.91/USD (vs our initial forecast of 13.2/USD | Current midrate: 14.64/USD).
  • The BOG confirmed the possibility for banks to pay dividend from the 2024 financial results, subject to stronger solvency positions. Our longstanding opinion was that some banks are well positioned to resume dividend payment once the regulatory suspension is lifted post-2025 due to their strong solvency positions. Specifically, we tipped Standard Chartered Bank (SCB) and Societe Generale Ghana (SOGEGH) as the most likely candidates for dividend payment. Given the confirmation by the BOG, we foresee sustained interest in fundamentally-strong banks as we continue to see investor interest in SCB, SOGEGH, and GCB banks.

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