A sharp decline in international gold prices following a return towards more conventional trade policies in the US and/or the resolution of major global geopolitical flashpoints would quickly erode the country’s international reserves, UK-based firm, Fitch Solutions, has warned.
It stated that the central bank would, in this scenario, struggle to maintain the cedi at current levels, leading to a renewed sell-off.
“This would keep inflation elevated, lead to a weakening in consumer and investor sentiment and prompt the central bank to keep interest rates higher for longer”, it stated in its downside risk forecast.
On the upside risk, it said a further appreciation of the cedi would bring inflation down more quickly than, “we currently project”.
This would support stronger private consumption and prompt the Bank of Ghana to ease monetary policy more rapidly, which would stimulate credit uptake.
Fitch further pointed out that the contribution of government consumption will be negative in 2025.
This is because the government pursues fiscal consolidation in line with Ghana’s International Monetary Fund (IMF) programme.
The report said a stronger exchange rate amid elevated gold prices will support the disinflation process, ease pressure on household budgets, and support consumer spending in the quarters ahead.
A Business Desk Report