The Monetary Policy Committee (MPC) of the Bank of Ghana is set to hold its final meeting of the year this week, amidst a backdrop of rising Treasury bill rates and persistent inflationary pressures. As the last meeting of both 2024 and the current government’s term, market watchers are not expecting any major shifts in policy. However, the meeting is still significant as it will provide insights into the Central Bank’s stance on the economy going forward.
Policy Rate Outlook
Analysts largely predict that the MPC will maintain the policy rate at 27%. This expectation comes despite inflationary pressures that have persisted since the Committee lowered the rate from 29% in September. Inflation has been rising steadily, leading to concerns about the effectiveness of the policy rate cut in curbing price increases.
Interest rates on all three Treasury bills (91-day, 182-day, and one-year notes) have seen a steady rise over the past two months, with current rates exceeding the policy rate. As of the latest data, the rates stand at 27.19% for the 91-day bill, 27.98% for the 182-day bill, and 29.82% for the one-year note. The growing divergence between these rates and the policy rate puts pressure on the MPC to consider another hike. However, doing so could be seen as inconsistent since the Committee only recently lowered the rate after maintaining it at 29% for most of the year.
Central Bank’s Forex Market Intervention
One of the most anticipated discussions at the MPC meeting will be about the Bank of Ghana’s recent interventions in the foreign exchange (forex) market. The Ghanaian cedi has experienced significant recovery over the past two weeks, strengthening from a rate of GH₵16.65 to the dollar to GH₵ 15.92 by the close of last Friday’s trading.
This recovery is largely attributed to the Central Bank’s aggressive intervention in the forex market. Unlike previous months where the Bank sold about $120 million over a three-month period, it is now selling the same amount in just one week. This increased supply of dollars into the market has helped stabilize the cedi in the short term, especially with concerns over currency volatility during the election period.
Key Concerns and Expectations
Businesses and financial analysts will be looking to hear from the Governor of the Bank of Ghana, Dr. Ernest Addison, regarding the longevity of these interventions. Clarity is needed on whether this aggressive forex strategy is a temporary measure tied to the upcoming election or if it will continue into 2025. Knowing how long the Central Bank plans to sustain its market interventions will help businesses plan for the future.
The MPC’s post-meeting press statement is also expected to provide updates on Ghana’s export and import revenues. These figures are critical for assessing how long the Bank of Ghana can continue supporting the cedi without significantly depleting its foreign reserves. Sustained interventions without sufficient revenue could pose a risk to the country’s economic stability in the long term.
The MPC’s final meeting of the year is unlikely to result in a major policy shift, but it remains crucial for understanding the Bank of Ghana’s approach to managing inflation, interest rates, and currency stability as the country moves into 2025. All eyes will be on the press statement following the meeting, where the Central Bank is expected to provide much-needed clarity on its plans for forex market interventions and overall economic strategy.
