Ghana’s CA growth, monetary policy bullish for bonds

Although the Bank of Ghana’s Monetary Policy Committee is widely expected to again maintain its Prime Rate–the rate at which it lends to commercial banks–at 13.5 percent, the state’s expansionary fiscal policy (namely ever growing public finances) is such that any unexpected slowdown in its current account (CA) deficit reduction (from 8.5% of GDP in 2010 to a 2.2% forecast in 2011 and dependent on high prices for gold, cocoa, and oil and a near doubling in the latter’s production to an estimated 120,000bdp by year’s end and over twice that by 2013) combined with inflation lingering above the Bank’s 8.5% target could tempt policy makers to hike the policy rate sooner than expected as a sort of preemptive strike.  Yet at last count March inflation (9.1% y/y) surprised slightly to the downside even as food inflation (which accounts for 45% of the country’s CPI) ticked higher to 4.7% y/y in March from 4.6% the previous month.  However given that the pass-through impact from domestic fuel prices–which are adjusted once a quarter,  jumped 30% on average in January and theoretically were set to be raised again last month–have already made their way through producer prices, which have risen each of the past two months, it seems likely that the inflationary trend will be upward; Absa Capital analysts, for instance, expect a 50bp hike by Q411.  That still, however, leaves the Bank relatively dovish within SSA.  With this in mind the recent commodity sell-off makes Ghana’s widening 2017 Eurobond spreads ever-more attractive, especially since the Cedi looks to remain supported by trade flows, foreign reserves and robust near-term growth prospects (12.8% projected in 2011).  Finally, the Bank’s latest credit extension survey [to both businesses and households] continues to improve, a positive for the country’s non-oil sector.