The pickup in the global economy has seen some progress in the half year compared to the general performance in the previous half year of 2016. After a credit crisis in 2008, followed by a slump in commodity prices, the global economy has come a long way to post some impressive performance than anticipated. A major global upset was the risk posed by the exit of the British from the European Union, which brought uncertainty to the stability of the world economy. With prudent monetary policy mechanisms and a stronger than anticipated consumer demand from the British economy, the Bank of England (BoE) has been able to gradually mitigate the anticipated risk that the British economy and the world as a whole faced from the unprecedented referendum.
On the domestic front, the economy has posted some impressive macro economic result during the period under review. While risks in the economy appear broadly balanced in the near term, they remain skewed to the downside over shortfall in Government revenue inflows which is expected to fall short from estimates, but yet below previous year’s figure of a deficit of 10.3 on commitment basis or 9.6 on cash basis. The deflationary downtrend, which started in the last quarter of previous year, has been largely supported in the first half of the year. Inflation saw a swift drift from previous year figure of 15.4% to 13.3% in January. The downtrend continued on a marginal pace until April 2017, where adjustment in petroleum and transport prices pushed inflation to flirt with a new third year high of 13%. Inflation for the first half of the year averaged 12.8% and ended the half year at 12.1% as inflationary pressure had been gradually reduced by steady petroleum prices in the second pricing window, a more subdued depreciation of the currency, and rather dovish stances by the Monetary Policy Committee to reduce the MPC rate.
The Monetary Policy Committee after taking a more harder position on the MPC rate to arrest and mitigate downside risk, have in the period under review toned down their position on tightening the MPC rate. The MPC has constantly reduced the policy rate for this year from a high of 25.50% at the end of its last policy meeting in November to a current rate of 21%, depicting a cumulative reduction of 450bps during the period under review.
On the equity front, the market has seen some upbeat in its performance after it experienced a rather abysmal growth in the previous year. With robust economic growth, downtrend inflation, and a resilient currency, the exchange has been gaining traction in the investor community and have reported a solid composite index return of 16.31% and the financial stocks index posting a return of 18.08% at the end of the first half of the year. The market is expected to continue its gradual solid rise in light of strong and resilient macroeconomic variables.
The Ghanaian Cedi has been relatively stable against its major trading partners, the US Dollar, the British Pound Sterling and the Euro, during the period under review. The local currency, however, had a rough ride between the period of February to March recording a year-to-date of depreciation of 9.62% and 11.51% against the US Dollar on the 8th of March on the Bank of Ghana (BoG) inter-bank trading platform and the Open Forex Market on 3rd March respectively. The central bank, however, rescued the abysmal performance of the Cedi by auctioning $120 million Dollars out of the $1.8 Billion cocoa syndicated loans. The government’s 2.25 billion Dollar sovereign bond which was raised in the latter part of March and was largely subscribed by offshore buyers came in handy to boost the country’s international reserve. The bond which was rated the largest single-day sovereign transaction in the entire Sub Saharan region boosted the country’s central bank reserves by a third and improved the country’s reserve by the volume of the subscription thereby strengthening the Cedi’s performance against its major trading currencies. These moves strengthened the Cedi’s hand against its major trading partners reversing the fall to record a year-to-date appreciation of 0.89% against the Dollar on the BoG inter-bank and 2.50 against the Dollar on the open forex market. The local currency ended the first half of the year with a depreciation of 3.88% and 3.87% against the Dollar on the BoG interbank and open forex market respectively.
Investors look to the second half with great expectations as inflation continues its downtrend to converge at the Bank of Ghana’s medium term figure of (+-) 8% and the policy rate is also expected to move further downwards to compliment the ease in inflation. With the current move in the policy rate, the subdued depreciation of the currency and the direction of Government Treasury rates, we expect lending rate to converge downwards, which would directly boost the demand for short to medium term lending facilities from the various Banks. As the Government looks ahead to float a 15-year energy sector bond which is expected readdress the high NPL’s of the Banks, a more glaring systemic risk that was posed by the Banks in the previous year is expected to be mitigated going forward. On the issue of Government, inflow versus its expenditure, we expect Government’s inflow to fall short of estimates, but with a controlled expenditure to achieve its fiscal consolidation program.
Michael Novor Addo (Invesment Analyst)
Paul Eshun (Investment Analyst)