GCB Capital Research, while expressing surprise at the Bank of Ghana’s (BoG) base rate cut decision, acknowledges the presence of substantial emerging inflation risks.
Despite the unexpected move, GCB Capital Research asserts that it was not entirely surprising, considering the prevailing economic landscape.
The imposition of a 15% Value-Added Tax (VAT) on end-user residential electricity tariffs for non-lifeline consumers, potential election-induced fiscal slippages, and geopolitical uncertainties pose significant inflationary threats.
However, GCB Capital Research aligns with the Monetary Policy Committee’s (MPC) view that the disinflation process remains on track, albeit facing emerging upside risks.
The GCB Capital Research says it anticipates a slower pace of disinflation, possibly altering course in March 2024 due to unfavorable base drifts before resuming a downward trajectory from April 2024.
While economic indicators suggest ongoing recovery, GDP growth still lags behind target, necessitating stimulus measures and justifying the rate cut.
However, GCB Capital Research expresses reservations about the strict implementation of the 2024 fiscal budget, despite IMF backing, citing Ghana’s historical tendencies for fiscal slippages during high-stakes election years, even under IMF-supported programs.
Consequently, potential fiscal slippage is flagged as the primary risk to sustained disinflation in the near term, warranting close monitoring.
GCB Capital Research therefore underscores the importance of maintaining an appropriately tight monetary policy stance to support the disinflation process, while remaining vigilant against fiscal vulnerabilities that could undermine economic stability.