The Bank of Ghana’s Monetary Policy Rate (MPR) is projected to decrease by 1.0 to 1.5 percentage points during the upcoming Monetary Policy Committee (MPC) meeting next week.
IC Research suggests that the drop in inflation to 20.4% in August 2024, along with a previous reduction in US interest rates by the Federal Reserve, provides a compelling argument for lowering the Bank of Ghana’s policy rate.
This potential reduction is likely to bring down borrowing costs and interest rates.
IC Securities’ research division noted that the unexpected drop in headline inflation for August 2024 heightens expectations of a dovish approach at the late-September 2024 MPC meeting.
“The case for policy rate cut gets stronger, given a higher real policy rate and prospect of earlier FED rate cut. At the current inflation rate, Ghana’s ex-post real policy rate rises to 8.6%. This stands at 180bps [basis points] above the December 2023 real policy rate which triggered a 100bps cut at the January 2024 MPC meeting”.
IC Research noted that, compared to its counterparts, Ghana’s real policy rate is somewhat higher, with Kenya’s real rate standing at 8.35% and Uganda’s at 6.50%.
“Our forecast disinflation in September 2024 suggests an even higher ex-ante real policy rate of 10.0%”, it mentioned.
This, it said, strengthens the case for a cut in Ghana’s nominal policy rate with low risk of losing attractiveness on Ghana cedi-denominated assets.
The anticipated cut in the US Fed rate, which will precede Ghana’s MPC decision, will also narrow the interest rate differential on US dollar Ghana cedi and support between 100 – 150bps cut in Ghana’s Monetary Policy Rate, it concluded.