Policy rate could have been deeper but for risks to inflation – Report
The policy rate cut by the Bank of Ghana could have been deeper but for the emerging upside risks to inflation.
According to GCB Capital, the upside risks to inflation compelled the Monetary Policy Committee of the Bank of Ghana to reduce the policy rate marginally.
“The rate cut could have been deeper, but for the emerging upside risks to inflation: The committee noted the several factors anchoring the disinflation process, including the tight policy stance, relative cedi stability, and favourable crude oil prices, among others, and the committee expect the disinflation process to continue despite the emerging upside risks to the inflation outlook”, it revealed in it Economic Update and Market Insight.
The MPC cut the policy rate by 100 basis points to 29% on Monday January 29, 2024. It expects headline inflation to ease to 15%±2% by the end of 2024 and gradually trend back to within the medium-term target range of 8%±2% by 2025.
GCB Capital said “Thus, the 100% cut appears to be a conservative action, given the upside risks to inflation, with the MPC counting on its commitment to maintain an appropriately tight monetary policy stance and a strict implementation of the 2024 fiscal budget to sustain the inflationary outlook”.
Disinflation process to continue but at slower pace
It continued that the disinflation process will continue but at a slower pace
“We agree with the MPC that the disinflation process is on course, and we are broadly aligned on the medium-term outlook for inflation despite the emerging upside risks. We expect the disinflation process to continue but at a slower pace, potentially changing course in March 2024 due to unfavourable base drifts before resuming the downward trend from April 2024”.
Again, it said though the 2.8% average growth outturn over nine months of 2023 is ahead of target and the leading indicators of economic activity are showing signs of continuous recovery, Gross Domestic Product growth is still below trend and requires stimulus; hence, the unsurprising cut in the policy rate.
However, it expects the MPC to maintain an appropriately tight policy stance to sustain the disinflationary process.
Source: Joy Business
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