Policy rate to hit 29% in 2023; cost of loans to further escalate – Fitch Solutions

Fitch Solutions is projecting a further monetary tightening by the Bank of Ghana [BOG] next year.

According to the UK based research and market information firm, the policy rate will go up by a further 200 basis points to 29% in 2023.

This will trigger an increase in the cost of credit and consequently heighten the cost of doing business in the country.

The policy rate has already gone up by more than 12.5% in 2022 due to the skyrocketing inflation. It stood at 14.5% in January 2022, but currently at 27%.

Senior Country Risk Analyst at Fitch Solutions, Mike Kruninger said the rate hike will however be at a slower pace.

“We believe that this tightening cycle isn’t over just yet and the Central Bank will hike additional 200 hundred basis point to 29% by the end of 2023. Indeed, if we look at real interest rates it becomes clear that the Bank of Ghana has a history of keeping those real interest rates in positive territories”.

“So this informs you that despite the price growth which will assume a disinflation path next year, the Bank [BOG] will keep raising rates in order to achieve those low-interest interest rates in 2023. It will be at a slower pace in 2023”, he explained.

Mr. Kruninger said the impact of significant monetary tightening in 2022 will restrict corporate and household access to credit in 2023, consequently impacting on the real sector of the economy.

“We also note the impact of the significant monetary tightening in 2022 will restrict corporate and household access to credit and this way on fixed investments and private consumption through 2023 further slow growth”.

He, however, commended the Bank of Ghana’s impressive monetary tightening cycle in 2022, which to some extent has kept inflation from not reaching alarming levels.