Market observers anticipate that the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will maintain its policy decision at 28 percent. The decision is expected to be announced next week Monday, March 27, 2023.

In an effort to drive inflation on a downward path, the MPC, in its last meeting in January 2023, further raised the policy rate by 100 basis points to 28 percent from 27 percent, cumulatively increasing the benchmark policy rate by 1350 basis points since March 2022.

The committee has hinted that it intends to remain resolute in its stance, at least, through Q1-2023, until inflation shows signs of moderation and the implementation of other available monetary tools to control the money supply and rein in inflation yield results.

However, with the recent moderation and deceleration of inflationary pressures, analysts are of the view that the MPC may be swayed to rethink its stance on monetary policy. The committee’s primary concern is to moderate liquidity in the system in order to underpin the macroeconomic adjustments taking place to drive inflation on a downward path.

Constant Capital, an investment advisory firm, in its review of February 2023 inflation, said the MPC may be persuaded by the stabilisation of the local currency, the moderation in inflation, and near-term forecasts to start an easing stance on monetary policy.

“We believe the MPC will hold the policy rate at 28 percent. With the settlement of the new treasury bonds under the Domestic Debt Exchange Programme (DDEP) complete, the bond market is also expected to gradually rebound in the short term,” the advisory firm said.

The cedi is expected to remain stable in the near term on the backdrop of enhanced liquidity, lower demand, and boosted investor sentiment stemming from the completion of the DDEP. The market is also optimistic about Ghana being successful in obtaining the extended credit facility and economic stimulus programme from the International Monetary Fund (IMF). With the cedi performing relatively well, it is anticipated that the disinflation trend would continue through the year.

Although the central bank expects inflation to peak in Q1-2023, the bank expects to bring inflation back to the medium-term inflation target band of 8±2 percent in the next four years, amid the IMF programme.

Similarly, Apakan Securities corroborated Constant Capital, stating that further softening in headline inflation in March 2023 is expected, premised on the stability of the cedi against the dollar, the decline in global oil prices and the favourable base effect. On the Bloomberg spot market, the cedi has appreciated by 4.2 percent against the dollar since the beginning of the month.

“We expect this to support a lower inflation print for March 2023,” it stated.

Additionally, global oil prices have been on the back foot following the banking crises in the US, as the market fears that the collapse of the banks could reverberate into other markets. Consequently, fuel prices are expected to fall between 3 percent and 10 percent in the second pricing window of March 2023.

“Against this backdrop, we expect the MPC of the central bank to hold their policy rate at 28 percent in its next meeting, which is expected to happen from March 22 to 24, 2023, with the policy rate decision scheduled on Monday, March 27, 2023,” Apakan Securities said.

In contrast, GCB Capital, in its analysis of inflation and implications for interest rates and monetary policy, stated that a sustained disinflation process will require a cautious monetary policy stance, hence, the need for a 100 basis points hike in the policy rate.

Given the government’s strategy to compress money market yields, GCB Capital notes that the excess cedi liquidity could fuel speculative activity on the FX market without tighter regulatory oversight.

“Thus, we expect a cautious monetary policy stance, balancing the risks to growth and inflation. We envisage another 100-bps hike in the policy rate at the March 2023 policy meeting as an intervention to mop up excess liquidity on the market or a reversal of the reduction in the cash reserve requirement to tighten cedi liquidity conditions on the market,” it said.

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