The Bank of Ghana will begin cutting its Policy Rate – the Rate at which it lends to commercial banks beginning the 4th Quarter of 2023, taking the rate from 30.0% as of July 2023 to 27.5% by the end of the year, Fitch Solutions has revealed.
With inflationary pressures moderating and economic growth slowing, the UK based firm said the central bank will resist further hikes.
“Even so, in the short term (2023 and 2024), the policy rate will remain substantially above the pre-Covid average of 6.6% seen over 2018-2019”, it explained.
Furthermore, Fitch Solutions said the current high interest rate, which is well above pre-Covid levels, will raise the cost of servicing debt for Ghanaian consumers and thereby reduce the funds available for spending on goods and services.
“This is especially the case for large loans such as mortgages and vehicle finance, where a small interest rate hike leads to a large absolute increase in the monthly repayment”, it added.
However, it continued that everyday debt, such as consumer accounts at retailers, credit cards and personal loans, have higher interest rates and can quickly make a big difference in terms of household budgets.
In line with the sharp increase in interest rates, credit to the private sector in Ghana has surged since late 2021, rising from an average value of ¢42.8 billion over half-year 2021 to ¢64.8 billion as of April 2023 (latest available data).
Debt levels are rising, and as repayment rates increase, so will debt servicing costs. This could place consumer spending under pressure as households are required to set aside more and more of their income for repayments.