Amid the elevated inflationary pressures and the sharp depreciation of the cedi against the dollar and other major currencies this year, the market anticipates a further hike in policy rate in the next Monetary Policy Committee (MPC) meeting of the Bank of Ghana.

The latest consumer inflation figures showed further surging at the end of 2022 for an accelerated 19th consecutive month at 54.1 percent from 50.3 percent in November 2022 on the back of food inflation; the passthrough effects of higher petroleum prices.

Inflation currently sits at 54.1 percent, thus 5.41x outside the upper limit of the central bank’s medium-term inflation target band and continues to adversely impact economic activity and consumer behaviour.

Ahead of the first MPC meetings of the year, starting on Wednesday, January 25, with the policy rate decision expected to be announced on Monday, 31st January 2023; Apakan Securities, a market watcher, in its forecast, says, it expects a hike in the monetary policy rate as the MPC to maintains its aggressive stance.

“We expect the MPC to maintain its hawkish stance, raising the policy rate by 100 basis points (bps) ± 50bps,” it said.

The market expects inflation to continue higher through January 2023, albeit at a moderated pace, with an outlook for a peak at the end of Q1 2023.

During 2022, the central bank cumulatively increased the benchmark policy rate by 1250 basis points to 27 percent – the highest rate in almost 2 decades.

The central bank has also served indication that it will remain hawkish at least through Q1-2023 until inflation shows signs of moderation and the implementation of other available monetary tools to control money supply and rein in inflation. Tighter monetary policy stance of various central banks around the globe and global recession risks could potentially weigh on Ghana’s economy.

The Bank of Ghana expects inflation to peak in Q1-2023, then decline to a 25 percent area by the end of 2023.

However, the recent utility tarrifs hike effective February 1, 2023 as announced by the Public Utility Regulatory Commission (PURC) remains an upside risk to inflation. The new tariffs will push electricity up by 29.96 percent for all customers and water by 8.3 percent.

According to the PURC, the increments were occasioned by the unstable exchange rate, rising inflation, generation mix and weighted average cost of natural gas.

Inflation expectations

Market watcher, GCB Capital in forecasting what to expect said: “We anticipate a sharper cooling of inflation beyond 1Q 2023 as we believe we have seen the worst of cedi depreciation. With the government committing to fiscal consolidation under an IMF programme from 2023, we expect the much-needed balance of payment support and policy credibility from the programme to anchor cedi stability through 2023”.

“We believe cedi depreciation and rising petroleum prices are the primary triggers of inflation, and given this improved outlook for 2023, we expect a sharper cooling of inflation beyond 1Q 2023,” it said.

Commenting on the outlook, Constant Capital also maintained its outlook of higher inflation in Dec-2022 with a potential peak deferred to Q1-2023.

“In the near term, we expect to see the impact of passthrough effects of cedi depreciation, elevated petroleum prices, upward transport fare adjustment, lagged impact of utility tariff hikes, as well as the yuletide-induced price increase and consumer demand to continue to lift the CPI,” it said.