Williams Peprah, an associate professor of finance at Andrews University in Michigan, hypothesized that the recent rise in US interest rates could put additional pressure on Ghana’s currency.
The federal funds rate, which serves as a benchmark for everything including business loans, credit card, and mortgage rates, has reportedly been raised by the US Federal Reserve to between 3.75% and 4% after remaining at 0% for more than a year during the coronavirus pandemic, according to theguardian.com.
While assessing the effects on Ghana, Professor Peprah pointed out that the country can suffer a loss or gain from the increase.
He believes that this will strengthen the US dollar which may result in a further weakening of Ghana’s currency.
He also stated that investment in the US will become more attractive and this may result in capital flight.
“An increase in the interest rate by US Federal Reserve by 0.75% to 3.75% will impact Ghana’s economy both negatively and positively. The negative side is that it will lead to capital flight and a reduction in foreign direct investments into the country and the dollar will become stronger, and you may see the cedi devaluing more or faster,” he is quoted by myjoyonline.com.
He also added that “Should Ghana be able to attract investors into the country, you may have to be able to compensate or give higher returns of more than 3.75% [dollar rate] to investors.”
However, the analyst noted that if Ghana’s export increases the country may benefit from the development.
“The positive side is that it will make Ghana’s exports cheaper,” he said.