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New MPR might aid in attracting investment for Ghana – Economist – Citi Business News

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Economist with Databank, Courage Boti, believes the revision in the monetary policy rate has the potential of attracting foreign investment into Ghana.

This comes on the back of the recent increase in the policy rate by 250 basis points to 17 percent.

According to him, this new development might mean more attractive interest rates for foreigners which might convince them to invest in the country.

Sharing his thoughts with Citi Business News, he said, “The main reason foreigners are moving out of our market is that they feel that the interest rate they are getting is not enough to compensate them for the risk they are bearing. With interest rate potentially going up along with the increment in MPR, it might mean more attractive rates now.”

“However, I say this with tongue in cheek because it can’t be guaranteed that by increasing the policy rate by 2.5% you expect people coming back to the market. There are a lot of variables to this scenario cannot predict what the reaction might be but it has the potential. it is fair to say if rates were quite low before and they are slightly higher now, then people may begin to look to your market again.”

This is the first time the Bank of Ghana has increased the key rate since November of last year.

Economists and analysts had prior to the BoG’s announcement asked for an increase in the monetary policy rate by at least 200 basis points to stem inflation and increase the attractiveness of cedi denominated assets to stem disinvestments from the money and capital markets and the negative effect on the cedi.

According to the Governor of the Central Bank, Dr. Ernest Addison, the 250 basis points increment was decided on to check inflation.

Addressing the media on Monday, he attributed the upward review of the rate to the sharp rise in inflation as well as the upsurge in prices of goods and services as well as petroleum products.

“Headline inflation has risen sharply to 15.7 percent in February 2022, and both headline and core inflation are significantly above the upper limit of the medium-term target band. The uncertainty surrounding price development and its impact on economic activity is weighing down business and consumer confidence… Under these circumstances, the committee has decided to increase the policy rate by 250 basis points to 17 percent” Dr. Addison announced.



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Average lending rate rises to 21.6% in April 2022 – BoG

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Average lending rate of commercial banks rose to 21.6% in April 2022, from 20.57% in March 2022, the Bank of Ghana has disclosed.

This is equivalent to 1.8% interest on loans per month.

However, the average lending rate varies among the banks and the respective sectors.

For instance, some banks will offer loans as low as 17% per annum, whilst others will charge rates as high as 29%. Overall, it will depend on the risk profile of the customers.

Again, some perceive lending to the agriculture and construction sectors as riskier, and therefore credit to these sectors are expensive.

According to the BoG Summary of Economic and Financial Data, cost of loans have been rising but marginally due to increasing inflation rate and other factors.

It rose from 20.16% in January 2022 to 20.52% in February 2022.

But average lending rate fluctuated in the first quarter of the year, and then fell consecutively till December 2021.

In January 2021, average lending rate stood at 20.97%, but shot up marginally to 21.02% in February 2021, and then fell to 20.96% in March 2021. After that it consistently dropped to 20.04% in December 2021 and later rose in January 2022.

But with the expected increase in the policy rate once again from its current 17%, lending rate is expected to go up further.

The Bank of Ghana will however hope the monetary policy measures to be announced on Monday May 23, 2022, will help bring down the rising inflation rate and consequently help reduce cost of borrowing going forward.



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Ghana’s public debt hits ¢391bn as of quarter 1, 2022

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Ghana’s public debt stock remarkably shot up by ¢40.1 billion to ¢391.9 billion as of the end of March, 2022, the Summary of Economic and Financial Data by the Bank of Ghana has revealed.

The increase in the debt is due to largely exchange rate fluctuation and to some extent borrowings from the domestic market. In the first quarter of 2022, the cedi assumed a free fall to the dollar, but its depreciation was halted in April 2022, following monetary measures by the Bank of Ghana.

However, in relation to the Gross Domestic Product of the country, the debt was estimated at 78%. This is slightly lower than the 80% recorded in December 2021.

According to the figures, the debt inched up by ¢20.5 billion in January 2022 and subsequently ¢19.7 billion in February 2022.

In terms of the domestic debt, it went up by ¢8 billion in the first quarter of 2022 to ¢189.9 billion in March 2021. This is equivalent to 37.8% of GDP.

Also, the external component of the total public debt shot up to $28.4 billion (¢201.9 billion) in March 2022, from $28.1 billion in December 2021. From the figures, clearly one can deduce that there were no borrowings from the external front in the first quarter of this year.

The debt-to-GDP ratio of the external debt is however approximately 40.2% of GDP.

The cedi component shot up by ¢31.9 billion in the first three months of 2022, primarily due to the decline in the value of the cedi to dollar during the period.

On the other hand, the financial sector resolution bond went down to ¢14.6 billion in March 2022, from ¢14.9 billion recorded in December 2021. This is equivalent to 2.9% of GDP.



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Ghana has highest interest rates among top 11 African countries – Report

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New data shows that Ghana presently has the highest interest rates among top 11 African countries.

According to Databank Weekly Fixed Income Update, the country’s 18.23% and 19.26% rates for the 91-day and 182-day Treasury bills respectively are the highest on the continent.

The Treasury bill rates in the country are however lower than the inflation rate of 23.6%.

Indeed, the relentless pace of inflation has stretched real returns on short term securities further down into the negative territory. So if you have bought Treasury bills in recent times, the return on your investments is negative.

This situation will compel the Bank of Ghana to increase its Monetary Policy Rate which currently stands at 17% further, to help mop up excess liquidity in circulation, and consequently halt the rising inflation rate.

“Real returns on fixed-income securities are depressed with the high inflation profile, continually undermining the Treasury’s financing operations. We note that short-term interest rates are misaligned, resulting in negative real yields, which could prompt the Monetary Policy Committee (MPC) to act in the week ahead”, Databank Research.

“However, Ghana cedi liquidity levels are already tight on the interbank market, and a further tightening of the MPR could stifle economic growth. So, while we maintain an additional 200 basis points (2%) hike in the policy rate in 2022, we expect the MPC to exercise restraint in May 2022, deferring a potential 100 basis points (1%) hike in MPR to July 2022.

The rising interest rates are expected to increase the cost of borrowing and production cost per unit of most businesses.

At the same time, government will borrow at a higher cost on the financial markets.

Meanwhile, Egypt follows Ghana closely with a 91-day Treasury bill rate of 13.67%.

Its currency – the Egyptian Pound – has been recording rapid depreciation to the dollar.

Nigeria has the lowest interest rate of 1.74% among the top 11 African countries.

Countries with lowest interest rates

COUNTRIES 91-Day T-bills 182-Day T-bills RANKINGS
Nigeria 1.74% 3% 1st
Tanzania 2.60% 2.78% 2nd
South Africa 4.28% 5.50% 3rd
Namibia 5.34% 4.84% 4th
Rwanda 6.10% 6.40% 5th
Uganda 6.77% 8.16% 6th
Kenya 7.68% 8.72% 7th
Zambia 9.30% 9.90% 8th
Malawi 9.74% 13.00% 9th
Egypt 13.67% 13.68% 10th
Ghana 18.23% 19.26% 11th



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