Geopolitical risks pose challenges to Ghana’s interest rate outlook, says Fitch Solutions
In a recent report titled “More Interest Rate Cuts On The Way In Ghana, Following Cautious Start Of Easing Cycle,” Fitch Solutions has identified potential upward pressures on Ghana’s interest rate forecasts, citing geopolitical tensions and their impact on global trade dynamics.
The research firm underscores the vulnerability of Ghana’s economy as a net importer of crucial commodities like fuel and food items. Heightened geopolitical tensions, Fitch Solutions warns, could disrupt global trade flows, leading to a surge in commodity prices worldwide. Such a scenario would inevitably translate into increased import costs for Ghana, posing a threat to the country’s ongoing efforts to stabilize inflation.
Moreover, Fitch Solutions highlights the risk of prolonged negotiations between Ghana and its commercial creditors. Delays in reaching agreements could extend beyond initial expectations, potentially delaying IMF disbursements and eroding investor confidence. This, in turn, could trigger a sell-off of the Ghanaian cedi and reignite inflationary pressures.
In anticipation of these challenges, Fitch Solutions suggests that the Bank of Ghana may adopt a more cautious stance in its monetary easing cycle than previously anticipated.
Despite these concerns, the Bank of Ghana reports relative stability in interest rates, particularly evident in the declining trend observed in short-term Treasury bill rates. As of February 4, 2024, rates for the 91-day and 182-day Treasury bills have decreased to 28.29% and 30.79%, respectively. Similarly, the rate on the 364-day instrument has fallen to 31.39%.
While Ghana’s interest rates remain broadly stable, Fitch Solutions’ cautionary stance highlights the intricate interplay between global geopolitical developments and domestic monetary policy, underscoring the need for vigilance amidst uncertain economic landscapes.
