The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG), at the end of its 105th meeting in March, announced an upward adjustment of the CRR – a fraction of the total deposits of commercial banks which are kept in their accounts with the central bank – by 400 basis points (bps) to 12 percent, surpassing the pre-pandemic level of 10 percent.

And Databank, in its ‘1Q22 Ghana Markets Review & Outlook for 2Q22’ report, projects that tighter local currency liquidity conditions will “curb forex demand and slow the cedi’s depreciation”.

Ultimately, the firm foresees a “moderate correction in the exchange rate in 2Q22”, on the back of other tightening measures by the monetary authority. Consequently, Databank has revised its full-year forecast range for the US dollar Ghana cedi BoG reference rate to GH¢7.46 – GH¢7.66 (midpoint: GH¢7.56/USD).

“We also raise our forecast range for the retail FX rate to GH¢7.87 – GH¢8.07 (midpoint: 7.97/US$),” the report stated.

“The cedi should find support from the tighter monetary policy stance in the months ahead. We expect a moderate correction in the exchange rate in 2Q22 as the Bank of Ghana’s monetary tightening realigns the exchange rate with external fundamentals. The 15.6 percent depreciation is the sharpest first-quarter decline since the 14.2 percent loss recorded in 1Q15.

“However, the prevailing current account deficit, which stands equivalent to 3.6 percent of GDP in FY21, compares better than the 5.8 percent recorded in FY15. The comparative current account balances suggest that the exchange rate may have overshot its long-run trend and indicate a potential return to stability in 2Q22,” it added.

Databank however warned of possible depreciation for the local currency against its major trading counterparts, due to the prevailing negative net oil export position – as the import bill for refined petroleum outweighs the export gains by 5.2 times – as well as the aggressive risk-off position that has been adopted by portfolio investors since mid-January.

Sector growth forecast

Despite the better-than-expected economic rebound recorded in 2021, the central bank’s recently-announced austere measures are projected to provide a marginal dent to growth of the real sector, as banks favour Treasury investments over real sector loan advances.

For the agricultural sector, Databank anticipates that government’s plan to reduce fertiliser subsidy, coupled with the spiralling price of fertiliser, grain and other inputs as a result of ongoing global geopolitical and supply chain developments, will serve as a downside risk, especially to the crop and poultry sub-sector.

Consequently, the asset management company cut its full-year growth forecast for the sector by 90bps to 3.9 percent.

The industry sector is expected to face a similar fate, again due to rising oil and gas prices as well as other inputs, with the construction sector being the worst hit. A 110bps reduction in the sector’s growth is forecasted at 4.7 percent.

The services sector will present a mixed bag as the trade sub-sector is squeezed by elevated costs, while sectors such as hospitality are expected to rebound following the easing of COVID-19 restrictions.

“Growth could be supported by the full resumption of economic activity in key sub-sectors. In late March, government announced a complete easing of COVID-related restrictions. This paved the way for immediate re-opening of Ghana’s land and sea borders – with hotels and other public premises/events allowed to operate at full capacity.

“With the vaccination programme still underway, we expect the easing of restrictions to support economic activity across the hospitality and transport sectors. Against this backdrop, we upgrade our FY22 growth forecast for the services sector by 30bps to 5.5 percent,” the report indicated.


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