Standard Bank is projecting a further 2% to 3% increase in the policy rate of the Bank of Ghana by December 2022.

This will increase the cost of borrowing further, but will help narrow the negative real return between inflation and interest rates. Presently, interest rates are hovering around 33% but lower than the inflation rate of 37.2% (October 2022).

However, the Bank of Ghana at an emergency meeting in September 2022 increased the policy rate by 250 basis points to 24.5%.

According to its September 2022 African Markets Revealed, the MPC will have to factor in elevated underlying inflation pressures and second-round impacts of a weaker cedi.

"Still, the MPC sees a potential International Monetary Fund deal as beginning to address fiscal challenges, thereby helping to anchor inflation expectations. Furthermore, the MPC is still working with mining firms to find a structure to enable them to boost the FX (foreign exchange) reserves via direct FX sales from this large export-earning sector.”

Inflation may ease

It pointed out that headline inflation may ease from October to November 20222 but stay in double digits until at least Aug 2023.

This inflation outlook, it said, is primarily predicated on an IMF deal being secured, which should reduce US dollar/Ghana cedi volatility.

“However, should negotiations with the IMF prove protracted, foreign portfolio outflows may burgeon amidst a still volatile global risk environment, placing further upward pressure on US dollar/Ghana cedi, as well as keep inflation stickier than we currently anticipate”.

Treasury yields to remain high

“Nothing much implies that yields at the shorter end of the curve will ease over the next 4 month or so. Indeed, with headline inflation likely elevated for most of half year 2023, Treasury bill yields may prove sticky”, it added.

It stressed that the growing consensus amongst both local and offshore investors is that any attempt by government to restructure local debt may crimp appetite for local debt, adding “the authorities may need to furnish some more clarity here”.

However, investors would probably wait for an IMF deal to clarify whether local debt would have to be restructured.