There seem to be contradictions among experts on the end-of-year outlook of Ghana’s inflation and policy rates.
Businesses, investors, and some individuals often depend on experts’ forecasts to make certain economic decisions, which signifies the relevance of such predictions.
A critical observation by The High Street Journal has revealed that well-known institutions such as the Bank of Ghana, Fitch Solutions, and Databank Research are projecting different figures and outlooks for Ghana’s 2024 end-of-year inflation and policy rates.
Inflation currently as of the end of June, stands at 22.8% while the policy rate was maintained by the Monetary Policy Committee (MPC) at 29% after their last meeting in July. Even though the inflation rate is elevated, it has been on a constant decline trend for some months. The Central Bank is optimistic that it will meet its inflation target of 13%-17% by the end of the year.
“There is some uncertainty regarding the inflation path for the year, given recent exchange rate pressures, upward adjustment in utility tariffs and increases in ex-pump fuel prices. The above developments have resulted in a slightly elevated inflation profile for the year. Even though inflation is expected to remain within the target year band, the risks are tilted slightly on the upside. This will require maintaining the strong monetary policy stance supported by strong fiscal consolidation efforts including remaining vigilant to ensure that the end year inflation objectives are achieved,” parts of the last MPC statement read.
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This downward trend projection by the Bank of Ghana is in line with the prediction by Fitch Solutions. The credit rating agency projects that the inflation rate will fall below 20% by the end of September. The agency further projects that the downward trend of inflation by the end of September is likely to result in the MPC cutting the policy rate by 200bps in November.
This projection by Fitch implies that the economy can expect the policy rate to reduce from 29% to 27% by the end of the year.
“We think that the BoG will implement a 200bps cut at the last MPC meeting of the year in November, bringing the key rate to 27.00%. Although inflationary pressures remain more persistent than the central bank would like, we believe it will remain on a downward trend, falling below 20.0% by September,” a Fitch Solutions statement said.
In sharp contrast to these projections is the latest analysis by Databank Research. Databank’s latest Quarterly Strategy Report projects inflation in Ghana to remain above 20%. This outlook contrasts sharply with the Bank of Ghana’s more optimistic forecast by the end of 2024.
Despite signs of economic recovery, Databank notes that inflation could reach as high as 23.5%, driven by fuel prices and a troubled cedi, with 19.5% being the most optimistic scenario.
This high-level end-of-year inflation projection by Databank brings into question the feasibility of Fitch Solutions’ prediction of a possible reduction in a policy rate. This is because per theory and practice, policy rate is a tool used to keep inflation under control. A high inflation rate as projected by Databank makes it unlikely for the authorities to reduce the policy rate.
For ordinary Ghanaians, businesses, and investors, such conflicting forecasts and outlooks can be very confusing and worrisome since they make decision-making complex and difficult.
