So the FOMC of the US Federal Reserve yesterday voted unanimously yesterday to set the new funds rate target to 0.25%-0.5% up from 0- 0.25%. This move is the start of what appears to be quarterly upward adjustments by the same margin all through next year.
The hike comes despite warnings from the IMF that struggling emerging economies, like Ghana, would suffer as a result. Investors will flee these markets for the safety of US debt driving up borrowing costs for the countries, a stronger dollar will make it harder for these economies to service their US-denominated debt and commodity prices will fall further. Frequent readers of CediTalk will know I’ve covered this already. You can find my take on it here and here.
The BoG recently increased the policy rate to 26%. They’ve anticipated the Fed hike since at least September when they raised the policy rate to 25%. However it appears from recent statements from the governor, Dr Kofi Wampah, that there are further hikes ahead.
It remains to be seen if the cedi, which has not dropped to the GH¢4 to a $1 level since July, will be immediately affected. However, Finance Minister, Seth Terkper’s plan to issue a $500m eurobond would be negatively affected as yields would be required to go up.