Loans to become more expensive as BoG hikes policy rate to 24.5%

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the Policy Rate by 250 basis points to 24.5%.

This is the highest policy rate increase since 2017.

The rate hike means it will become more expensive to borrow from the banks, a situation that will push the cost of living and doing business in the country further up.

Addressing the media, the Governor of BoG, Dr. Ernest Addison, explained that the committee reached the decision to check the rising inflation rate as the country negotiates with the International Monetary Fund (IMF) for an economic programme.

“Inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations”.

“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path,” Dr. Addison added.

Interest rates surge

The Bank of Ghana also said short-term interest rates on the money market had reflected recent developments. In contrast, medium-term to long-term rates have remained relatively behind the yield curve.

For example, while the discount rate on the 91-day instrument has increased to 29.7% in September 2022 from 12.5% in September 2021, the coupon rates on the 7-year, 10-year, 15-year, and 20-year have remained unchanged at 18.1%, 19.8%, 20.0%, and 20.2% respectively.

The interbank market weighted average rate has increased to 22.05% in September 2022 from 12.61% in September 2021, consistent with the rise in the policy rate.

Average lending rates of banks have also adjusted upwards to 29.81 percent in September 2022 from 20.20 percent recorded in the corresponding period of 2021.

The policy rate up by 9.5% since March 2022

Since the Bank of Ghana first increased the policy rate in March 2022, the interest policy rate has gone up by 9.5%.

The Central Bank increased the policy rate by 2.5% on March 25, 2022, to 17%, and subsequently increased it on May 23, 2022, to 19%.

It again adjusted it upwards by 300 basis points to 22% in August 2022.

Source: Myjoyonline.com

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