Fitch Solutions is forecasting a steady policy rate of 30.0% by the Bank of Ghana at its next meeting in September 2023.
It however believes that the Central Bank will commence a monetary easing cycle in the fourth quarter of 2023, as inflation will moderate rapidly towards the end of 2023.
In its latest report on Ghana, the UK-based firm said the regulator of the banking industry will cut the benchmark policy rate by 200 basis points to 28.00 percent by the end of the year.
Fitch Solutions furthered that inflation will moderate rapidly in the 4th quarter of 2023 as a result of favourable base effects.
“We expect that the BoG will keep the policy rate on hold at its next MPC meeting in September 2023. While inflation rose in both May [2023] and June [2023] we expect the disinflation process to resume in quarter 2023. Upside pressure to price growth in recent months has primarily been caused by a weak exchange rate compared with 2022”.
The cedi sold off rapidly in the 4th quarter of 2023, suggesting that the currency will be significantly stronger in the last quarter of this year, sharply reducing imported pressures on a year-on-year basis.
“Indeed, the cedi averaged GH¢11.14/USD in Q223 [quarter 2, 2023], as against GH¢7.67/USD in Q222 [quarter 2, 2022], pushing up prices of imported goods and services on a year-on-year basis. Given our view that significant exchange rate weakness is unlikely over the remainder of 2023 due to IMF funding and stronger investor sentiment, the impact of imported inflation on the headline figure should start to dissipate in Q323 [quarter 3, 2023].
This Fitch Solutions said informs its forecast that inflation will fall below the 30.0 percent mark by November, 2023. It means real interest rates will return to positive territory for the first time since January 2022.
As a result, it expects the central bank to adopt a more relaxed monetary policy stance at the last MPC meeting of 2023.