21st November 2022 11:29:10 AM
2 mins readAccording to the research division of rating agency Fitch Solutions, the Bank of Ghana would keep raising the monetary policy rate.
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Fitch Solutions stated that the central bank is anticipated to raise the policy rate to 27 percent by the end of 2023 in a recent article on Ghana that was published on November 14, 2022.
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However, it thinks that the increase will push real rates upward.
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The paper stated: "We anticipate that this will push real rates into positive territory, promoting capital inflows and supporting the exchange rate, allowing the cedi to decline at a slower rate over 2023."
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Touching on measures to address soaring inflationary pressures, Fitch Solutions said it expects Ghana’s central bank to further tighten its monetary policy as part of conditionalities of an imminent International Monetary Fund deal on the basis that Ghana secures a programme by the first quarter of 2023.
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“Given that we expect inflation to remain high, we expect that Ghana would have to tighten monetary policy as a condition of the IMF deal,” Fitch Solutions added.
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Since the start of this year, the BoG has hiked the monetary policy rate by about 10 percent to 24.5 percent in October 2022.
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Although the Bank of Ghana believes the hike is necessary to stem inflation, Fitch Solutions expects political risk to remain contained, reassuring foreign investors.
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“While we expect to see an uptick in protests against austerity measures that would likely be implemented under an IMF programme, we do not believe they will threaten the overall stability of the government. This is factored into our Short-Term Political Risk Index, in which Ghana scores 62.0 out of 100 (a higher score implies lower risk), above the Sub-Saharan African average of 50.3.”
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“In this scenario, we would not expect to see capital flight related to political instability, limiting downside risks to the exchange rate”, it added.
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Meanwhile, the Monetary Policy Committee of the Bank of Ghana are expected to begin its final and scheduled meeting for the year to review economic developments and make a determination of the next policy rate decision.
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