Fitch Solutions, a leading provider of credit ratings, commentary and research, has projected that the Bank of Ghana (BoG) will continue its cycle of increasing the Monetary Policy Rate (MPR).
According to the research institution, the monetary policy rate which is used by banks in determining interest rate will persistently go up, hence increasing the benchmark interest rate to 27% by the end of 2023. This, it believes, will bring real rates into positive territory.
“We expect that this will bring real rates into positive territory, stimulating capital inflows and providing support to the exchange rate, which will allow the cedi to depreciate at a slower pace over 2023.”
Fitch Solutions
Commenting on the ways to control the rate at which average prices of goods and services are increasing, Fitch Solutions advised the Central Bank of Ghana to ensure that its monetary policy rate is tightened as part of the conditionalities of an imminent International Monetary Fund (IMF) deal. This was however, predicted on the basis that Ghana secures a program by first quarter of 2023.
“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
The current monetary policy rate is 24.50%, indicating that the Central Bank of Ghana has increased the monetary policy rate by 10% since the beginning of the year, Fitch Solution disclosed.
On Tuesday 22nd November 2022, the Monetary Policy Committee of the Bank of Ghana is expected to commence its bi-monthly review of developments in the economy and to take a decision on the policy rate.
The rising inflation rate is expected to feature predominantly in the meetings as the BoG pledges to bring average price movements down to its target levels.
Political Stability Will Remain the Same
Fitch Solutions however, reassured foreign investors that despite the continuous increase of the monetary policy rate by BOG, the political stability of the country will remain the same.
“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.”
Fitch Solutions
In this scenario, Fitch Solutions noted that “we would not expect to see capital flight related to political instability, limiting downside risks to the exchange rate”.
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