The Monetary Policy Committee (MPC) of the Central met last week to review recent economic developments in a bid to position the benchmark policy rate going forward. Since the last MPC meeting in March 2018, we have seen positive developments in the two key considerations (inflation and economic growth) that influence the decision of the MPC, which points to a continuation of the policy easing cycle. However, there are emerging inflationary threats that cannot be overlooked by the MPC, and as such we are likely to see a cautious pace of policy easing later today unlike the last time when it was cut by 200bps.

The Ghana Statistical Service released 2017 annual GDP data in April 2018, and it showed that Ghana's economic growth recovered strongly in 2017 on the back of increased oil production and the implementation of policies and initiatives to boost economic activity. The economy grew by 8.5% in 2017 from 3.7% in the previous year. Ghana's economic growth is expected to remain robust in 2018 on the back of higher oil production, ongoing industrialisation of the economy, ongoing monetary policy easing cycle that should eventually reduce lending rates to boost credit to private sector and recapitalisation of the banking sector to empower banks to finance key growth sectors of the economy.

In addition, inflation has dropped for two consecutive months to single digit rate of 9.6% in April 2018, driven by recovery in the GHS against major trading currencies in the last two months (March and April) and reductions in utility tariffs. This is the lowest rate in the last five years for inflation, which is now within the government's medium term target of 6-10% in 2018.

However, there are inflationary threats arising from crude oil price rally and deprecation of the GHS. Crude oil prices have rallied in May 2018 and it is likely that pump fuel prices would be reviewed upwards, which could lead to inflationary pressures. In addition, while the local currency has continued to recover against major trading currencies such as the EUR and GBP, it has depreciated by 0.16% against the USD so far in May 2018 despite recent transactions (Eurobond issue, IMF release, local bond issue) that were expected to boost USD inflows to support the GHS.

Ghana's high economic growth estimate and slowdown in inflation to single digit are likely to support monetary policy easing to reduce lending rates in a bid to boost credit to private sector to enhance economic activity. In the last MPC meeting in March, the MPC cut the policy rate by 200bps to 18.0%, but we expect the MPC to be cautious this time around due to emerging inflationary threats especially from crude oil price rally. We expect the MPC to reduce the benchmark policy rate by 50-100bps today.