Mr Courage Martey, a financial analyst, has stated that people seeking new loans should expect to pay higher interest rates as a result of the Bank of Ghana’s Monetary Policy Committee (MPC) raising the policy rate from 19% to 22%. (BoG).
The ultimate effect of an increase in the policy rate is an increase in the cost of borrowing.
“For loans already existing, if they are fixed rate loans you do not surfer anything, if they are flexible rate loans toed to some inflation rate or some 91 day bill plus some spread, then of course your loan obligation, interest cost is going higher,” he said on the Ghana Tonight show with Alfred Ocansey on TV3 on Wednesday August 17.
“But if they’re fixed-rate loans, you’re stuck for a while.” However, everyone else applying for new loans now should brace themselves for higher rates because it will eventually filter through to market rates.”
Speaking at the MPC’s emergency meeting in Accra on Wednesday August 17, the Governor of the BoG Dr Ernest Addison said recent developments in the foreign exchange market showed elevated demand pressures, reflecting among others, continued heightening of uncertainties in the global economy, rising inflation in many advanced economies and the resultant coordinated tightening of monetary policy stance by major central banks.
This, he added, has further tightened global financing conditions with significant implications for Emerging Markets and Developing Economies (EMDEs), especially for those with weak fundamentals.
The US Dollar has strengthened against all major currencies. From the beginning of the year to date, the pound sterling has weakened against the US dollar by 12.4 percent while the Euro has also weakened by 11.8 percent. Countries similar to Ghana (Ghana’s peers) are all experiencing sharp depreciation to date.
The Ghana Cedi, he noted, has depreciated by 25.5 percent year-to-date, reflecting the Ghanaspecific situation, including the challenging financing of the budget from both domestic and external sources, downgrading of sovereign credit rating, nonresidents disinvestment in local currency bonds, and loss of reserve buffers.
“The execution of the budget for the year has remained challenging. Revenue has not kept pace with projections and created financing challenges. In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft.
“Whilst addressing the immediate financing problems, the ongoing policy discussions with the IMF are expected to address the underlying
macroeconomic challenges, restore fiscal and debt sustainability, and provide sustainable balance of payments cushion.
“Under the circumstances, and considering the risks to the inflation outlook, the Committee decided on a 300 basis points increase in the Monetary Policy Rate to 22 percent.”
