BoG forecasts 29% inflation by year-end

Ghana's inflation rate has seen a significant decline, reaching a 12-month low at 38.1 percent in September. The Bank of Ghana (BoG) is optimistic about the country's economic outlook, expecting the headline inflation to further reduce to 29 percent by the end of the year. Kweku Arkoh-Koomson, an Economic Analyst at Databank, has shed light on the factors contributing to this downward trend and shared insights on the potential moves by the BoG in the upcoming months. The economic landscape in Ghana has been characterized by fluctuations in inflation rates, with peaks and troughs reminiscent of a pendulum swing. The slowdown observed from January to April this year seems to be reverberating, leading to the current downward trajectory in inflation figures. Kweku Arkoh-Koomson acknowledged the efforts of the BoG in combating inflation by maintaining a policy rate of 30 percent. Despite indications of easing inflationary pressures, the central bank's resolute stance on curbing inflation has played a pivotal role in stabilizing the economy. The relative stability of the Ghanaian cedi has also been instrumental in mitigating exchange rate pass-through effects on inflation. Compared to the previous year, where the cedi experienced a significant depreciation, the current marginal loss in value has helped in reigning in inflationary pressures. Additionally, favorable comparisons to the sharp rise in inflation last year have provided a cushion, contributing to the moderation of inflation increments. The dynamics within the food market have also influenced the inflation trajectory, further supporting the downward trend. Looking ahead, the focus shifts to the upcoming Monetary Policy Committee meeting of the BoG, which marks the final session for the year 2023. The decisions taken during this meeting hold substantial significance, especially in light of the approaching elections in 2024. Any misstep in policy formulation could potentially disrupt investor confidence and heighten uncertainties in the market. Kweku Arkoh-Koomson anticipates that the BoG is likely to maintain the policy rate at 30 percent, aligning with forecasts of inflation hovering around 31.9 percent by the year-end, as projected by the IMF. This strategic move is aimed at narrowing the gap between the nominal policy rate and the inflation rate, ensuring a favorable policy environment. By having a positive policy rate if the current decline in inflation continues into the next year, the BoG aims to sustain the downward trajectory of inflation, fostering economic stability and growth. The economic analyst emphasized the importance of monitoring the BoG's policy decisions and government initiatives to navigate the evolving economic landscape in Ghana. The proactive measures and strategic interventions by the central bank are crucial in shaping the country's economic outlook and fostering a conducive environment for sustainable development.