Ghana inflation: Is MPC's hold stance best option?

The Bank of Ghana's Monetary Policy Committee has decided to hold the key benchmark rate at 29 percent, citing uncertainty in the country's inflation path due to recent exchange rate pressures, upward adjustments in utility tariffs, and increases in fuel prices. Karen Kwarteng, Head of Global Market Sales at Standard Bank, joined CNBC Africa to discuss the implications of this decision and the broader economic outlook for Ghana. Kwarteng noted that the decision to maintain the current rate comes after a 100-basis point cut earlier in the year. Despite concerns about inflation fueled by currency pressures, she believes that the hold stance is appropriate as it may help stall disinflation and moderate inflation in the second half of the year. The Bank of Ghana has set a target of 13 to 17 percent for inflation by the end of the year, aligning with the government's target of 15 percent. The key theme of the discussion centered around the importance of strong fiscal consolidation alongside monetary policy actions to support the economy. Kwarteng emphasized the need for increased revenue and reduced expenditure, citing measures such as the introduction of the Ghana.gov platform and the Ghana Integrated Financial Management Information System by the government. The aim is to address inflationary pressures caused by currency devaluation, utility tariff hikes, and rising fuel prices. Regarding investment sentiment, Kwarteng expressed optimism about a potential appreciation of the Ghanaian cedi in the near term. She highlighted the restructuring of the 13.1 billion euro bonds and the anticipated IMF disbursements in November as positive factors that could bolster the currency. However, challenges remain, including declining COCO earnings affecting regulators' intervention capacity in the forex market. In terms of lending rates and their impact on the banking sector, Kwarteng acknowledged the challenges posed by high reference rates, making it difficult for businesses to access affordable credit. The discussion also touched on the recovery of the banking sector following the domestic debt restructuring program. Kwarteng praised the banks' resilience and the support from regulatory and governmental bodies, which have contributed to the sector's stability. As Ghana navigates the complexities of inflation management and economic stability, the collaboration between monetary and fiscal authorities will be crucial in achieving sustainable growth. With a focus on consolidation and prudent financial management, Ghana aims to address current challenges and pave the way for a more resilient economic future.