Research institution IC Research is anticipating a decrease in inflation, possibly falling below 29.0% in November 2023. This projection suggests the potential for restoring a positive real rate within the next month.

IC Research believes that the decision of the Monetary Policy Committee of the Bank of Ghana to maintain the policy rate aligns with their views on the near-term outlook for the policy rate.

This is based on the observation that both core and headline inflation remained above the upper target as of October 2023.

The institution further opines that maintaining a positive real policy rate is essential for the authorities to achieve a sufficiently tight monetary policy stance.

“The MPC’s “hold” decision firmly aligns with our views on the near-term outlook for the policy rate as both core and headline inflation remain at over 3.5 the upper target of 10.0% as of October 2023. Furthermore, we opine that the authorities require a positive real policy rate to achieve a sufficiently tight monetary policy stance. Our forecast decline in inflation, potentially below 29.0% in November 2023, makes it possible to restore a positive real rate within the next month at the 30.0% nominal policy rate”.

According to IC Research, it draws two main implications from the additional monetary policy measures. “Firstly, the unified reset CRR [Cash Reserve Ratio] of 15.0% translates into a 300bps [basis points] hike in the CRR on foreign currency deposits (to be held in local currency) and 100bps hike in the CRR on local currency deposits. Secondly, the directive for banks to hold CRR on foreign currency deposits in local currency reserves will increase demand for GHS-denominated cash balances as the Central Bank mops up interbank local currency liquidity”.

The research asserts that the increase in the Cash Reserve Ratio (CRR) is intended to alleviate the interest burden on the Bank of Ghana. This is because, unlike Central Bank securities, cash reserves do not generate interest. The research suggests that commercial banks may have been prioritizing high-yielding Bank of Ghana bills over expanding their loan portfolios.

In October 2023, inflation in Ghana decreased to 35.2%, down from the 38.1% recorded in September 2023. According to data from the Ghana Statistical Service (GSS), this decline in the overall inflation rate can be attributed to a slight decrease in food inflation.

During this period, food inflation was reported at 44.8%, while non-food inflation stood at 27.7%. Additionally, inflation for locally produced items was 34.4%, and imported items recorded a rate of 34.4%, down from 37.4% in the previous month.