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The Analysis: US interest rates go up, Ghana in more trouble

Director of the IMF, Christine Lagarde says emerging markets like Ghana will be affected in terms of cost of borrowing, as well as servicing  dollar- dominated loans.

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The Ghanaian economy will be definitely take some hit after the U.S Federal Reserves increased the country's interest rate to 0.25%.

Director of the IMF, Christine Lagarde, says emerging markets like Ghana will be affected in terms of cost of borrowing, as well as servicing  dollar- dominated loans.

 

" It will put a little bit more pressure on those economies who have borrowed in U.S dollars denominated loans. It will not only be Asia, there will be African countries who will be bearing the brunt of that as well."

Meanwhile, Financial Analyst with the BBC, Russell Padmore believes, the Ghanaian private sector just as the government will suffer.

" This really comes at a time when central banks of other developed economies are not increasing interest rates as the U.S has just done in years. And interestingly, once rates are up, it is going to go into a cycle of more increases in interest rates. This is the economic theory now. The real problem for the African economy, notably the Ghanaian economy is that the U.S dollar has been increasing steadily in value against many African currencies including the Cedi. And with interest rates going up the value of the dollar will further increase in value."

The BBC's analyst added that businesses in Africa and Ghana who will be directly affected will have to sell stakes in their companies to survive the shocks.

 

" The weakening currencies around the world and the strengthened U.S dollar as well as increased interest rates could create a perfect storm for companies leading to them selling assets, some might even run into  more trouble and the mighty even lead to defaults in their debt."

We know that more companies in African countries have acquired more dollar- denominated debt recently due to poor stability of their own local currencies. This will proof very costly at this time when the U.S dollar is certain to increase in value.

The U.S has found it economically right to increase interest rates for the first time in almost a decade as its economy continues to stabilize.

Head of the U.S Federal Reserves Janet Yellen in a press conference in Washington, Wednesday night, said, the country has considerably turned the curve of global economic downturn that hit ten years ago.

" We have considered the risk to the outlook and worried about the fact that, with interest rates at zero, we have less hope  to respond to negative shocks than positive shocks that would call for re -tightening the policy. That is the factor that has induced us to hold rates at zero for this long. What we will like to avoid is a situation where we have waited so long,  that we are forced to increase rates abruptly."

The U.S market is set to be a prime destination for investor- funds after this development. According to data from the U.S banking sector, for example, over $8.3 trillion worth of funds have currently been invested in the U.S money market by investors. And the current 0.25% interest rates, they stand to make an interest of $21 billion. The decision they will have to make at this point is whether to invest for a sure return in the U.S with is a more stable economy that most other world economies or, invest in risky emerging markets like Ghana.

 

 

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