Loans will get more expensive as BoG hikes key rate to 24.5%

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Dr Ernest Addison

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) raised the policy rate by 250 basis points to 24.5%.

This is the biggest increase in the policy rate since 2017.

Rising rates mean it will become more expensive to borrow from banks, a situation that will further drive up the cost of living and doing business in the country.

Speaking to the media, BoG Governor Dr Ernest Addison explained that the committee had taken the decision to control the rising rate of inflation as the country negotiated with the International Monetary Fund (IMF) a program economic.

“Inflation remains high and the balance of risks is on the upside. Although forecasts call for monthly inflation to continue to moderate, risks are on the upside, stemming largely from the pass-through effects of currency depreciation, the recent upward adjustment in utility prices and the rise in inflation expectations”.

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

Soaring interest rates

The Bank of Ghana also said that short-term money market interest rates reflected recent developments, while medium and long-term rates remained relatively below the yield curve.

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

The weighted average rate of the interbank market fell from 12.61% in September 2021 to 22.05% in September 2022, in line with the increase in the key rate.

Average bank lending rates also adjusted upwards to 29.81% in September 2022, from 20.20% recorded in the corresponding period of 2021.

The policy rate has increased by 9.5% since March 2022

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

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

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

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