Analysts Expect Ghana to Raise Interest Rate
Fitch Solutions analysts said they are expecting the Bank of Ghana (BoG) to raise its benchmark interest rate by a further 50 basis points (bps) to 15.00 per cent by the end of the fiscal year 2022.
The firm said in its latest report, recalled that on November 22, the BoG hiked the interest rate by 100 basis points to 14.50% at its final monetary policy committee (MPC) meeting of 2021.
Bank of Ghana had kept rates unchanged at the previous two meetings and a made 100 basis points cut in May 2021 amidst rising debt stock.
In its MPC statement, the BoG cited ‘elevated inflationary risks’, and a subsequent need to re-anchor inflation expectations as the primary reason for tightening its policy rate.
Price growth accelerated from 10.6% year on year in September to 11.0% in October, driven largely by an increase in fuel prices, as well as the inflationary pressures stemming from currency depreciation.
“We expect economic growth to accelerate in 2022, thus providing room for the BoG to focus on inflation targeting and supporting the cedi”, Fitch Solutions said.
Economic activity has been recovering, with real gross domestic product (GDP) growth in Q221 coming in at 3.9% year on year.
The report said while Q3-2021 GDP growth data have not been published at the time of writing, the BoG’s Consumer Confidence Index increased from 91.8 in August to 93.9 in October, and the Business Confidence Index increased from 93.2 in August to 95.5 in October, indicating a slightly more benign backdrop.
“Our Pharmaceuticals & Healthcare team expect vaccinations to accelerate next year, with most priority groups likely to be vaccinated by end-2022.
“This, together with improving labour market conditions (we forecast unemployment falling from a forecast 4.4% in 2021 to 4.1% in 2022) will bolster consumer confidence, and see private consumption growth accelerate from 3.8% in 2021 to 4.7%”.
The mining sector will also perform well in 2022, bolstering fixed investment and exports. Fitch Solutions Mining team expects gold output to rise by a robust 4.0% to 5.0mn ounces.
As a result of these factors, analysts forecast that real GDP growth will rise from 4.2% in 2021 to 4.8% in 2022, allowing the BoG to tighten further.
It said inflation will remain elevated in 2022, at an average of 8.6%, and above the mid-point of the BoG’s 6.0-10.0% target range, thus incentivising another hike.
Read: Bank of Ghana to Tighten Monetary Policy as Growth Pressures Ease
This reflects sustained high fuel prices, and higher import costs due to a weakening cedi – Fitch Solutions analysts forecast the currency weakening by 4.9% to an average of GHS6.23 per dollar in 2022.
Moreover, it said the BoG will remain concerned about upside inflationary pressures stemming from rising government spending, and continuing global supply challenges. A further factor influencing Ghanaian monetary policy in 2022 will be the US Federal Reserve, the report said.
“We expect the Fed to hike its fund’s rate target range by 25 basis points in response to rising inflation, which our Global team expects to remain higher and stickier than previously expected.
“This will put pressure on the BoG to maintain Ghana’s interest rate differential with the US, with the view to stemming capital outflows and supporting the currency”, the report stated.
