Increase in US interest rate may cause further losses to cedi as dollar strengthens

An associate Professor of Finance at Andrews University in Michigan, Williams Peprah, has projected that the recent increase in the interest rate in the US may mount more pressure on Ghana’s currency. The US Federal Reserve according to theguardian.com has increased the federal funds rate – which acts as a benchmark for everything including business loans, credit card, and mortgage rates – to between 3.75% and 4% after sitting at 0% for more than a year during the coronavirus pandemic. Professor Peprah while measuring the impact on Ghana, noted that the country may lose or benefit 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. Watch the latest episode of BizTech below: SSD/FNOQ