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Inflation to Peak in Q3, end year at 22% – Fitch

Adnan Adams Mohammed

Fitch, in it’s latest rating action, expects inflation to peak in 3Q22 before slowing through the end of the year.

The ratings released last week, projected annual average inflation of 22% in 2022, slowing to 16% in 2023. Fitch’s projection is better than Ghana government’s revised projected end year inflation of 28.5% as presented by the Finance Minister, Ken Ofori-Atta, during the presentation of the mid-year review budget to parliament, fortnight ago.

Fitch’s projection is grounded on the recent Bank Of Ghana’s Monetary Policy Committee (MPC) decision to raise the main policy rate twice in 2022, by 450bp to 19%. However, Fitch believes that the central bank would raise the policy rate again if inflation does not peak in line with current expectations.

“A higher policy rate would likely be transmitted to domestic yields, putting further pressure on the government’s domestic borrowing costs”, Fitch Ratings indicated.

The government revised the end-period inflation from 8% to 28.5%.  

Mr Ofori-Atta explained that, the revision of the end-period inflation for 2022, as part of the re-jigging of the entire macroeconomic framework, has been necessitated by a significantly-changed macroeconomic environment.

He said based on the developments for the first six months of 2022 and outlook for the rest of the year, the government has, accordingly, revised the macro-fiscal targets for 2022 as follows.

Figures released by the Ghana Statistical Service, (GSS), indicate that year on year inflation measured by the Consumer Price Index, (CPI) has increased slightly to 31.7 percent for the 12months period ended July, 2022 from 29.8 percent recorded in June, 2022.

This means that between June 2022 and July 2022, prices of goods and services have gone up by 31.7% indicating a 1.9% increase.

Government statistician Prof. Kobina Annim made the announcement when he addressed journalists on August 10, 2022.

“We composed this from two perspectives, the food and non-food inflation and from a domestic and imported perspective. From the food and non-food inflation we recorded food inflation of 32.3% and 31.3% for non-food inflation.”

“From the domestic perspective we recorded 29.2% and imported inflation of 31.3%.”

This has been attributed to the increasing depreciation of the cedi which has led to the increase in the cost of imports.

Imported goods such as cooking oil and gasoline due to the war in Ukraine, dollar strength and extreme weather caused the rise in the inflation rate from 29.8 percent in June.

Fitch has downgraded Ghana’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘B-‘.

The downgrade reflects deterioration of Ghana’s public finances, which has contributed to a prolonged lack of access to Eurobond markets, in turn leading to a significant decline in external liquidity.

In the absence of new external financing sources, international reserves will fall close to two months of current external payments (debits in the current account) by end-2022. However, Fitch, typically, does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

“Ghana faces USD2.75 billion of external debt servicing in 2022, including amortisation and interest, and USD2.8 billion in 2023”, Fitch Ratings estimates. “Access to external financing will remain tight, as Ghana is likely to remain locked out of Eurobond markets, which had come to be a regular source of external financing for the government.”

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