International research firm, Fitch Solutions, has predicted that Ghana’s central bank will continue to hike its monetary policy rate to about 24 percent by the end of 2022.
In August 2022, the BoG in an emergency meeting hiked the monetary policy rate by 300 basis points to 22 percent in a move to stem inflation risks and the persistent depreciation of the cedi.
But according to Fitch Solutions, the projection is based on elevated inflation which is driven by the rapid depreciation of the Ghana Cedi against major trading currencies which will peak in the final quarter of 2022.
It explained that this will force the Bank of Ghana to take the path of policy rate hikes to stem inflation – which also increases the impact on the cost of borrowing.
Fitch Solution also pointed out the central bank would further tighten the monetary rate on the condition of a possible economic bailout from the International Monetary Fund which could be secured in 2023.
Due to this, Fitch Solutions predicted that the BoG will hike the benchmark interest rate by some 3 percentage points to 27 percent in 2023.
“The MPC’s decision to increase the policy rate signals growing concerns about inflation, informing our projection of an additional increase of 200 bps [basis points] over the remainder of 2022 (950bps cumulatively),” Fitch Solution said.
Touching on Ghana’s exchange rate regime, the research firm predicted continued weakness which would drive inflationary pressures in the near term.
“Exchange rate weakness will continue to be the key driver of inflationary pressures in the near term. S&P Global and Fitch Ratings downgraded Ghana in August [2022], further weakening investor sentiment and putting additional downward pressure on the cedi”.
Fitch also said the recent increment in water and electricity tariffs which took effect on September 1, 2022, will impact the already existing inflationary pressures in the country.
“With Ghana being dependent on imported fuel, machinery, vehicles and cereals, sharp losses of the cedi will continue to drive up import costs that will be largely passed on to consumers," it explained
"In addition, the Ghanaian Public Utilities Regulatory Commission announced a 27.2% and 21.6% hike in electricity and water tariffs respectively, which will take effect on September 1 and add to already elevated inflationary," Fitch continued.
"As such, we [Fitch Solutions] believe that inflation will continue to accelerate in the next two to three months and have revised up our 2022 average inflation forecast to 27.3%, from 25.0% previously,” it added.
MA/FNOQ
Governor of the Bank of Ghana, Dr. Ernest Addison