The Bank of Ghana’s efforts to dampen inflationary pressures through contractionary monetary policies is beginning to have a significant effect on the economy.

According to investment firm, Tesah Capital, this is welcoming as inflation takes a downward trajectory.

However, it does not want the Central Bank to be complacent.

“The Bank has tightened its monetary policy stance by increasing the policy rate by a total of 15% since the beginning of 2021. In addition, the Bank has more recently been aggressively mopping excess liquidity in the banking system, with the March 2023 monetary policy report showing a significant increase in open market operation (OMO) sterilization in February 2023,” it said.

“While it is encouraging to see inflation falling in Ghana, the Bank of Ghana cannot afford to be complacent”, it pointed out.

It urged the Monetary Policy Committee to continue on the path of raising the policy rate.

“We believe that the recent decline in the inflation rate is consistent with the latest inflation forecast by BoG staff. The forecast indicates that headline inflation is projected to slow down but remain above the upper band of the target range until the end of 2025. It must be noted that this projection is based on well-anchored inflation expectations and is strongly supported by a tight monetary policy stance”.

Tesah Capital concluded that its analysis indicates that the current policy rate of 29.5% (and a real rate of -11.2%) is not restrictive enough to return inflation to the target range by the end of 2025.

To reinforce the pace of recent disinflation and anchor inflation expectations toward the target range of 6% to 10%, it urged the MPC not to fall for the temptation to leave the policy rate unchanged.

“Instead, we recommend implementing a prudent increase in the policy rate within the range of 50 to 150 basis points to effectively address the prevailing circumstances”.