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Loans to cost more as BoG raises interest rate to 24.5%

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The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the interest rate by 250 basis points to 24.5%.
This is the highest increase in interest rates since 2017.

A rate hike means it will become more expensive to borrow from banks, a situation that will further push up the cost of living and doing business in the country.
BoG Governor, Dr. Ernest Addison, speaking to the media, explained that the committee arrived at the decision to check the rising rate of inflation as the country negotiates with the International Monetary Fund (IMF) on an economic program.
“Inflation remains high and the balance of risks is pro-inflationary. While monthly inflation is forecast to continue to moderate, risks are pro-inflationary, stemming largely from the ongoing effects of currency depreciation, the recent upward adjustment in utility prices and rising inflation expectations”.

“The Committee remains committed to re-anchoring inflation expectations and returning to the path of disinflation,” added Dr. Addison.
An increase in interest rates
The Bank of Ghana also said short-term money market interest rates reflected recent developments. In contrast, medium to long-term rates remained relatively behind the yield curve.
For example, while the discount rate on the 91-day instrument rose to 29.7% in September 2022 from 12.5% ​​in September 2021, the coupon rates on the 7-year, 10-year, 15-year and 20-year remained unchanged at 18.1%, 19.8%, 20, 0% and 20.2%.

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The weighted average interbank market rate increased to 22.05% in September 2022 from 12.61% in September 2021, which is in line with the increase in the base interest rate.
Average bank lending rates also revised upwards to 29.81 percent in September 2022 from 20.20 percent recorded in the same period of 2021.
The base interest rate increased by 9.5% from March 2022.
Since the Bank of Ghana first raised the key interest rate in March 2022, the interest rate has risen by 9.5%.
On March 25, 2022, the central bank increased the base interest rate by 2.5% to 17% and subsequently increased it to 19% on May 23, 2022.
In August 2022, it revised it upwards again by 300 basis points to 22%.


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