Domestic factors driving Ghana’s interest rates, says IMF Mission Chief
IMF Mission Chief to Ghana, Stephane Roudet, speaking at a press briefing during the IMF/World Bank April Spring Meetings on Friday, stated that Ghana’s interest rates are predominantly influenced by domestic factors, particularly inflation and monetary policy.
According to him, external factors such as interest rate hikes in advanced economies have had little impact on interest rates in Ghana.
“Interest rates in Ghana are mainly driven by domestic factors, not so much by the global environment, in particular by the level of inflation and monetary policy in the country,” he quipped.
Headline inflation for March 2024 stood at 25.8% with the Central Bank’s monetary policy rate currently pegged at 29%.
The average lending rate to businesses in Ghana stands at 32.77%.
Speaking further during the press briefing, Mr Roudet clarified that there was never an expectation for the government to regain access to international capital markets in the near term.
He noted that access would be regained gradually as the IMF programme is implemented and debt restructuring is completed.
“There was never any expectation that things would unfold differently when it comes to the financing picture for the government. The government has lost access to international capital markets. It was never expected that this access would be regained anytime soon. Of course, it will be regained in time, but the programme has to be implemented, and the debt restructuring has to be completed. There are lots of things that have to fall into place,” he posited.
Given the government’s restructured medium and long-term debt, Mr Roudet further emphasized that financing would primarily be sourced from the short-term segments of the domestic market.
“It was clear that especially having restructured medium and long-term debt, that would mean that access to domestic markets would be mainly on the short-term segments. So there is no surprise here. Again, the expectation was that the government would finance itself mainly on the short end of the market and there is no surprise there. The expectation was also that it would finance itself on the short end of the market at interest rates that already would be close to the policy rate because this is the same type of maturity,” he remarked.
Looking ahead, Mr Roudet noted that IMF expects inflation to continue decreasing, providing room for the central bank to lower interest rates.
“The expectation going forward is that because inflation is going to continue to go down and it will create space for the central bank to reduce interest rates, it will then mean that the government will be able to borrow at lower interest rates going forward,” he added.
“At the same time, the government is adjusting its budgetary position, which means that the total amount of financing that it needs to raise in the domestic markets is gradually going down and this is easing pressures on interest rates as well. So right now, everything is going in the right direction as expected under the programme,” he concluded.
