The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) will today, Wednesday, August 17, 2022, hold an emergency meeting to review recent developments in the economy.
A statement issued by the Bank of Ghana noted that “The meeting will conclude with an announcement of the decisions of the Committee”.
In the last MPC Meetings in July, the Committee pointed out that the two inflation readings since the May MPC meeting pointed to continued broad-based upward pressure on prices, reflecting the pass-through effects of increases in ex-pump petroleum prices, transport costs, currency depreciation, and food prices.
Headline inflation increased markedly from 23.6 percent in April 2022 to 27.6 percent in May, and then further up to 29.8 percent in June. Bank of Ghana disclosed that a similar to the observed trends in headline inflation, underlying inflation pressures also rose sharply as the Bank’s core inflation measure, defined to exclude energy and utility, rose from 22.3 percent in April 2022 to 28.4 percent in June.
However, the MPC assessed that the pace of month-on-month inflation has slowed for the second consecutive time in June. After increasing by 5.1 percent in April 2022, the monthly headline inflation slowed to 4.1 percent in May, and then to 3.0 percent in June.
While it was expected that the BoG will hike the policy rate to close the gap between inflation and the prime rate in its 107th meetings, “The Committee expects that the macroeconomic framework that will underpin an agreed IMF-supported programme will present a stronger coordinated monetary and fiscal policy framework that will anchor stability and prevent a wage-price spiral, which will lead to inflation becoming more entrenched”.
Based on its assessments, the Committee was of the view that it will be appropriate to pause and observe the impact of the recent monetary policy measures already taken and such, decided to hold the policy rate at 19%.
Unfortunately, inflation rose above the 30% mark to 31.7% in July, just after the MPC’s meetings and the IMF program is now expected to start in the next 6 to 9 months.
Goldman Sachs projects hike in policy rate
Meanwhile, US Investment Banking Giant, Goldman Sachs, is projecting at least a 200 basis points hike in the policy rate during the MPC’s emergency meeting today.
Goldman Sachs noted that this move by the Bank of Ghana will be influenced by the fact that the central bank may want to take some extra measures to deal with the current pressures on the Ghana cedi as well as the rising inflation rate.
“The Cedi depreciation and a decline in FX reserves, imply that the macroeconomic outlook may deteriorate further in the near term. We expect the MPC to announce a 200bp policy rate hike to 21% and see a meaningful upside risk to this forecast, given the extent of FX and domestic financing pressures”.
Goldman Sachs
Goldman Sachs was of the view that inflation and financial stability risks, stemming from forex weakness combined with the challenging domestic financing environment for the government — which has led the BoG to begin monetizing the deficit — have prompted the call for this meeting.
Goldman Sachs expressed concerns over “perceived lack of urgency in concluding programme talks with the IMF (with locals expecting a 6-9-month timeframe), despite intensifying BoP, FX and fiscal financing pressures”. It warned that “a delayed conclusion creates the risk of further deficit monetization by the BoG”.
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