Research institution, IC Research, is forecasting a decline in inflation, potentially below 29.0% in November 2023.
This, it believes, will make it possible to restore a positive real rate within the next month.
It added that the Monetary Policy Committee of the Bank of Ghana’s decision to hold the policy rate firmly aligns with its views on the near-term outlook for the policy rate as both core and headline inflation remain over the upper target as of October 2023.
Furthermore, it opined that the authorities require a positive real policy rate 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”.
It continued that given that cash reserves do not earn interest, unlike Central Bank securities, the CRR hike will ease the interest burden on the Bank of Ghana as commercial banks took advantage of the high-yielding Bank of Ghana bills at the expense of loan book expansion.
October inflation fell to 35.2%
Inflation for the month of October 2023 fell to 35.2% from the 38.1% recorded in September 2023.
Data from the Ghana Statistical Service (GSS) showed that the decrease in the general inflation rate can be attributed to the marginal drop in food inflation.
Food inflation in the period was 44.8%, while non-food inflation was 27.7%
In addition, inflation for locally produced item was 34.4% while imported items stood at 34.4% from 37.4% in last month.