Analysts bet on BoG rate-hold

The Bank of Ghana’s (BoG) key decision-making body, the monetary policy committee (MPC), will likely keep its main lending rate on hold at 16 percent on Wednesday in a bid to balance policy between growth and inflation, analysts have told the B&FT.

Although last week’s transport fare hikes and this week’s fuel-price jumps have given cause for a pessimistic outlook to inflation, the BoG is more likely to keep the rate steady as there is a need for a balancing act between inflation and job-creation, said Sampson Akligoh, Head of Databank Research in Accra.

“I think that we should see monetary policy to be more supportive of growth in the short-term and avoid a hawkish view, as fuel price hikes do not necessarily reflect deterioration in underlying inflation,” he said.

“I think the outlook for inflation and indications from Ghana's government to create jobs will provide the need for a balancing act.”

Collins Appiah, Executive Director of NDK Asset Management, also predicted a stable rate because the MPC will allow time for its previous rate-hike in May to have its full effect on inflation. After rising for seven consecutive months, consumer inflation fell in August to 11.5 percent from 11.8 percent the month before. The BoG is aiming to keep inflation within a 9-11 percent band by year-end.

“When there’s a change in the policy rate, the minimum period for it to take effect is six months. So I think it’s still quite a short time for us to have experienced the full effect of that increase,” said Appiah, who added that the relatively unstable cedi implies more threats to inflation than growth.

The cedi, which last year saw its worst depreciation against the dollar in four years, has shed further losses of more than 6 percent this year -- which despite being an improvement over 2012 still seems to concern many market watchers.

The BoG has insisted its foreign exchange reserves are adequate to defend the cedi against further weakness, with the volume of buffers -- US$5.8 billion -- exceeding the bank’s three-month import-cover target.

Both analysts said the economy will fare relatively better in the second half with the onset of the domestic harvest season, and likely improved inflows of foreign direct investments now that the uncertainty from the presidential election petition has been removed.

“I think the domestic harvest period will dwarf the effect of recent fuel and transport fare hikes, and inflation figures will not be substantially out of current range in the fourth quarter of 2013 -- but the pass through effects of transport prices will certainly have a noticeable effect,” said Akligoh.

Government officials have said GDP growth, which slowed in the first quarter to 6.7 percent from 10.3 percent a year ago, has been picking up since the end to the energy crisis in July. Official growth data is however yet to be released. The Ministry of Finance has forecast growth, which was 7.9 percent in 2012, to be 8 percent this year.

“Now that the petition is over, things are clearer as to who will manage the economy. That should encourage investment in the second half,” said Appiah.