Some analysts have argued that the continuous decrease in headline inflation rate may compel government to decrease interest rate in the country.
Headline inflation rate for November, 2020 reached a single digit falling from 10.1 per cent in October, 2020 to 9.8 per cent last month.
Despite the continuous decline in inflation since August this year, this has not reflected in a decrease in the Bank of Ghana’s Monetary Policy Rate which has been maintained at 14.5 per cent since the outbreak of the Coronavirus pandemic in the country.
However, with the attainment of a single digit inflation, sentiments expressed by market analysts reflect a reduction in interest rates by government.
According to them, the reduction in inflation to a single digit will reinforce government’s desire to push interest rates down as part of measures to reduce the domestic cost of borrowing amid financing needs triggered by the pandemic.
Market analysts are also of the view that, a reduction in the interest rate by government would lead to a reduction in the 14 per cent interest rate on treasury bills, to reduce government’s debt service burden which currently takes a little over 50 per cent of its total revenue.
Meanwhile, market analysts expect interests on treasury bills to fall in the short term, although there are some risks to inflation in December as a result of increased spending due to the Christmas festivities.