In brief
- The Bank of Ghana’s Monetary Policy Committee (MPC) left the Monetary Policy Rate (MPR) unchanged at 30.0% at its latest MPC meeting in September 2023, in line with market expectations. The MPC cited the sharp decline in inflation in August 2023 with expectation of continued disinflation in the months ahead as a basis to maintain the status quo on the policy rate.
- Overall, our key takeaway from the MPC engagement is that the Committee is confident of a sustained decline in CPI inflation, with a potential return to single digits anticipated within three years. In view of this generally favourable inflation guidance, we believe the MPC has signalled an end to the rate hiking cycle after a cumulative increase of 16.5pp, which began in November 2021.
- In our update on the August 2023 inflation – Coming in from the Cold – we expressed optimism that a favourable base effect will quicken the pace of disinflation in 4Q2023 to between 29.7% y/y – 31.7% y/y by FY2023 (GOG target: 31.3%), Refreshingly, the MPC anticipates a similar path for inflation in the months ahead with the Committee’s expectation for year-end inflation around the 29.0% area, following the sharp decline witnessed in August 2023.
- We think the MPC would lean on sustained decline in inflation in the months ahead to restore positive real policy rate within the next six months. Against this view, we do not expect any cut in the policy rate until 2H2024, subject to election-related risks. For Treasury yields, we think the expected disinflation in the months ahead will cap the upside and do not envisage the peak 35.0% levels observed pre-March 2023. We perceive the 30.0% – 33.0% range as the potential peak for yields across the 91-day to the 364-day tenors.
- Drawing inspiration from recent indicators of real sector activity, the MPC sounded a bullish tone on the growth outlook for FY2023 and signalled an imminent discussion with the IMF review team to align on growth. The authorities now expect growth in the 3.0% area, slightly above our expectation of between 1.9% – 2.9% for FY2023 and higher than the IMF’s 1.5% forecast.
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