November inflation projected to fall below 29%

A research institution, IC Research, has predicted a likely decline in inflation of below 29% for November 2023.

It noted that this will ensure a positive real rate for December 2023.

Furthermore, the institute noted that the Monetary Policy Committee decision is a good short-term measure, however, there has to be a real policy rate to help achieve a tighter policy rate.

“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,” IC research was quoted by myjoyonline.com.

IC Research said 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 however explained that since 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.

SSD/NOQ

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