Ghana’s year-on-year inflation is firmly on course to outperform the International Monetary Fund (IMF) target for end-2023 inflation, IC Research has stated.

It pointed out that the November 2023 inflation (26.4%) print pulls headline inflation symmetrically within the 27.4% inner band and the 25.4% outer band of the lower limit under the IMF programme’s Monetary Policy Consultation Clause.

“Against this backdrop, we reiterate our view that the authorities [government] will outperform the IMF’s end-2023 central target of 29.4% with a firm tilt towards the outer band of the lower limit.”

“Reassuringly, our updated CPI forecast for end-2023 points to the potential to outperform even the outer band of 25.4% with a projected landing zone of 24.2% in December 2023.

During the November 2023 MPC meeting, the Bank of Ghana unified the cash reserve requirement for all bank deposits to be held in cedi-equivalent and effectively hiked the cash reserve ratio to 15.0%.

IC Research continued “Our impact assessment revealed that this monetary decision has effectively mopped up ¢4.6 billion from the interbank market as banks’ holding of Bank of Ghana bills declined to ¢28.1 billion as of December 13, 2023 (versus ¢32.6bn pre-Monetary Policy Committee)”.

It added that the monetary squeeze triggered upward reversal in yields across treasury bills, following three consecutive weeks of pre-MPC decline across the curve.

It warned that the Treasury’s exclusive reliance on T-bills as the financing source for the 2023 and 2024 budget deficit remains an upside risk to yields.

However, it expect the sharp disinflation to ease the pressure and potentially revive a modest downside risk for yields.