Standard Chartered expects policy rate hike by Bank of Ghana
The Standard Chartered Bank says it sees a small chance the Bank of Ghana (BoG) will increase its policy rate by 100 basis points.
The Bank indicated in its Outlook on the country published Tuesday May 14, 2013 ahead of the expected announcement of the policy rate by the Monetary Policy Committee of the central bank Wednesday May 22, 2013.
The Bank of Ghana maintained its policy rate at 15% at the beginning of 2013 because it said risks to inflation and growth in the outlook were fairly balanced.
Standard Bank notes that the Ghana cedi (GHS), the national currency has been under increased pressure since mid-April, due largely to the drop in gold prices, Ghana’s main export, but also more recently due to deteriorating sentiment on the ground and the frontloading of US dollar demand.
“The BoG has linked GHS weakness to seasonal factors (we find little seasonality in GHS) but has said that it will act, which is consistent with our view that it wishes to ensure an orderly GHS market to keep the confidence of international investors, who finance Ghana’s persistent current account deficit,” it said.
“In our base case, the BoG acts this week to support the Ghanaian cedi, most likely through reserve requirement hikes and a reduction in banks’ net open foreign exchange positions. We also see a small chance of a 100bps hike in the prime rate,” Standard Chartered says.
The Bank however indicates that the Ghana carry trade is popular; “3-year Ghana bonds are widely held by international investors. We recommend that investors who do not already own Ghana add 3-year bonds to their portfolios, foreign exchange -unhedged, and recommend that holders consider adding further,” the Outlook suggests.
On trade and current account deficits, the Outlook says, the widening of the trade and current account deficits since 2008 has put the Ghana cedi on a weakening trend. While the deterioration in the current account in 2008, an election year, was largely driven by rising food and oil prices, and to some extent capital imports ahead of oil production, the worsening of the current account deficit in recent years has been more structural, driven largely by surging import demand.
“The slump in gold prices seems to have exacerbated the trend in April, aggravated recently by deteriorating sentiment on the ground,” it adds.
By Emmanuel K. Dogbevi