A global investment and research firm, Goldman Sachs, has predicted that the Bank of Ghana (BoG) will hike its Monetary Policy Rate by 200 basis points.
The Monetary Policy Committee (MPC) of the central bank is expected to on Wednesday August 17 conclude an emergency meeting called to respond to the current economic challenges in the country.
In a guidance note to investors, the research arm of Goldman Sachs pointed out that it expects a minimum 200 basis points (bps) hike from the current rate of 19 percent.
“We expect the MPC to announce a 200-bps policy rate hike to 21 percent and see a meaningful upside risk to this forecast, given the extent of FX and domestic financing pressures.”
“The MPC maintained the policy rate at 19 percent at its July meeting in a dovish policy surprise (consensus: 20 percent; GS: 21 percent), on account of growth headwinds and slowing sequential inflation prints.
“Since then, headline inflation (year-on-year) surprised to the upside in July and was stable in sequential terms at +3.1 percent month-on-month (+37.2 percent in annualised terms), a very elevated rate relative to the BoG’s 8 percent +/-2 percentage points target,” the investment bank explained.
Should the prediction be realised, it could represent the second highest increase in the monetary policy rate in more than seven years.
Although the Bank of Ghana did not provide further details on the rationale of the emergency meeting, recent credit downgrades, inflation pressures, deterioration of the cedi against major trading currencies among others signal some reasons for the meeting.
Goldman Sachs however believes: “This comes after an acceleration in the pace of depreciation for the cedi in the past two weeks – almost 10 percent against the US dollar, amounting to a cumulative 50 percent currency depreciation year-to-date.
“In our view, inflation and financial stability risks stemming from this FX weakness combined with the challenging domestic financing environment for the government – which has led the BoG to begin monetising the deficit – have prompted the call for this meeting,” it added.
Meanwhile, at the central bank’s last meeting in July this year, it maintained the monetary policy rate at 19 percent.
A global investment and research firm, Goldman Sachs