The market anticipates a further drop in the headline inflation rate into the upper 30s, as the Ghana Statistical Service (GSS) readies to release the Consumer Price Index (CPI) figures for May 2023 today.

This expected decline comes on the back of recent positive indicators – such as a favourable base effect, a decrease in global crude oil prices and the cedi’s relative stability against major currencies, including the US dollar. The potential lower CPI rate for May 2023 is expected to provide valuable insights for bond pricing.

Prior to this anticipated data release, consumer inflation dropped in April 2023 – easing to 41.2 percent compared to 45 percent in March and supporting the notion of a promising downward trend in prices of goods and services. The data released by GSS demonstrates a gradual slowdown in the rate of price increases. In March 2023, inflation dropped significantly from 52.8 percent in February to 45 percent. Additionally, between March and April 2023 the rate of price increase slowed from 7.8 percentage points to 3.8 percentage points.

May 2023 saw the country’s private sector experience a fourth consecutive month of expansion, with the S&P Global Ghana PMI standing at a near 1-1/2-year high of 51.3 – unchanged from the previous month. New orders grew at the fastest pace since September 2021, driven by improved demand amid the sustained slowdown in inflation. As a result companies expanded their purchasing activity and employment, effectively preventing backlogs of work. The availability of raw materials also improved, leading to a series-record improvement in suppliers’ delivery times. Input costs and selling prices both slowed significantly.

The outlook for business activity over the next 12 months improved to its highest level since January, with hopes of stable prices, exchange rates and support from the IMF.

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) decided to maintain the Monetary Policy Rate (MPR) at 29.5 percent. The MPC cited a rapid easing of underlying inflationary pressures and decreasing inflation expectations as the basis for this decision. The International Monetary Fund (IMF) has urged the central bank to keep a tight monetary policy until inflation is on a clear downward trajectory, and to eliminate monetary financing of the fiscal budget. In line with this recommendation, the MPC tightened financing conditions in its March 2023 meeting by raising the policy rate to a record high of 29.5 percent and increasing the Cash Reserve Ratio (CRR) to 14 percent.

In a positive development for Ghana’s credit rating, Moody’s Investors Service upgraded the country’s local currency long-term issuer rating from Ca to Caa3, maintaining a stable outlook. This upgrade is a result of government’s successful primary local currency debt restructuring, reducing the expected losses on local currency debt in the future. The debt exchange has provided Ghana with fiscal relief and diminished the need for further debt restructuring in the near- to medium-term. However, the Caa3 rating still reflects the existing risk of potential default until Ghana addresses its remaining local currency debt and restructures its foreign currency debt.

The market believes that the combination of declining inflation, positive economic indicators and government’s debt restructuring efforts has created a balanced outlook for Ghana’s economy. However, risks still exist; such as the potential for further negotiations regarding the restructuring of foreign currency debt and limitations on accessing local currency funding.

Nevertheless, the expectation of a smooth foreign currency debt restructuring process – along with fiscal and external adjustment supported by the IMF – contributes to the overall positive sentiment surrounding Ghana’s economic prospects.

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