Credit ratings agency, Fitch Solutions has predicted that the Bank of Ghana is likely to reduce its benchmark policy rate by 200 basis points (bps) before the close of 2024.
This anticipated 200bps reduction is expected to reduce the current rate of 29% by 2 percentage points hence ending the year at 27%.
The Bank of Ghana in its last Monetary Policy Committee release last month maintained the benchmark policy rate at 29% citing “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” as some underlying reasons.
Given the current prevailing economic conditions and the outlook for the economy, Fitch Solutions in its latest Country Risk Analysis anticipated that the Central Bank will leave the policy rate unchanged at the next MPC meeting in September.
The agency explains this prediction that “while inflation will come down in the coming months, underlying, price pressures will persist” adding that “economic activity will remain robust, reducing the need to adopt a more accommodative monetary policy stance.”
But Fitch is optimistic that the November MPC meeting is likely to result in a 2-percentage points cut to end the year at 27%.
This anticipated decision in November, Fitch explains will be necessitated by the predicted downward trend of inflation which is expected to fall below 20% by September. The agency further adds that there is also the likelihood that the cedi will appreciate to recover some of its losses in the year hence giving the possibility of a policy rate cut.
“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. In addition, we expect that the cedi will start paring back some of the losses it incurred so far in 2024 which will limit upside inflationary risks,” Fitch Solutions explained in their publication.
This anticipated reduction, if materialized in November is expected to translate into a reduction in interest rate leading to cheaper cost of loans. This will make loans relatively affordable for businesses and consumers hence encouraging borrowing and spending to spur economic growth.
Fitch has not always been accurate in its projections, particularly regarding the performance of the cedi, which remains a significant risk factor for the downward trend in inflation. This is due to the continued surge in demand for the dollar and potential delays in receiving funds from the annual cocoa syndicated loan, as reported by Bloomberg.
