Ghana February inflation recedes by 30bps to 23.2%

Ghana's inflation rate dropped by 30 basis points to 23.2% in the month of February, marking a continued downward trend in the country's inflation figures. Kweku Arkoh-Koomson, an Economic Analyst at Data Bank, joined CNBC Africa to discuss the implications of this decrease and its potential impact on monetary policy and the banking sector. According to Arkoh-Koomson, the decline in inflation can be attributed to the volatility in month-on-month momentum and the performance of food prices. He noted that food inflation has been on the rise for the past few months, which could pose upside risks to inflation. As Ghana enters a period of increased seasonality effects on food prices, maintaining the current monetary policy rate of 29% may be necessary to manage inflationary pressures. While the Bank of Ghana aims for an average inflation target of 15% for the year, Arkoh-Koomson expressed skepticism about achieving this goal. He highlighted potential factors such as election-year spending and fiscal overruns that could contribute to heightened price pressures. With these uncertainties in mind, he suggested that the 15% target may be too ambitious for the current economic landscape. Shifting focus to the banking industry, Arkoh-Koomson discussed the significant growth in profit that banks in Ghana experienced in 2023. He attributed this recovery to lower provisions for payment costs and increased income from lending to the government, driven by attractive treasury bill returns. The positive indicators in bank profitability signal a successful turnaround from the losses incurred in the previous year. Looking ahead, Arkoh-Koomson acknowledged the upcoming recapitalization exercise for banks later in the year. While detailed plans from the Bank of Ghana are still pending, he speculated that the increase in capital requirements could exceed the current $100 million threshold. With potential insights expected after the next Monetary Policy Committee meeting, banks will need to prepare for possible adjustments to meet the new capital targets. In terms of growth opportunities for banks, Arkoh-Koomson emphasized the importance of exploring high-quality private sector lending and capital market transactions. Despite a moderation in loans and advances growth, banks can leverage the macroeconomic environment to seek profitable ventures. Opportunities in sectors like infrastructure development, such as the recent listing of Casabrecon on the market, present avenues for banks to enhance their liquidity and bottom line. In conclusion, the discussions with Kweku Arkoh-Koomson shed light on the complex dynamics shaping Ghana's economic landscape. The balancing act between managing inflation, navigating banking sector reforms, and seizing growth opportunities underscores the challenges and opportunities that lie ahead for the country's financial ecosystem.