Following the recent hike in the policy rate, investors on the equity market are expected to re-adjust their portfolio holdings on the domestic stock market, to reap an increase from fixed income securities.

This is according to Economist with Databank, Courage Martey.

The Monetary Policy Committee of the Bank of Ghana, since November 2021, maintained the policy rate at 14.5% but increased it to 17 percent on Monday, March 21, 2022.

Speaking to Citi Business News, Courage Martey noted that the increase is likely to hurt non-bank listed companies.

“The policy rate is the anchor interest rate for other interest rates on the market because it is what signals the direction other interest rates should go. So, if the policy rate goes up, it is signalling to the other interest rate or owners of capital that interest rates should go up. So, interest rates on the market particularly the fixed income market will start to go up, and we are already seeing it on the market, across the yield curve from the short end to the longer end and the hike in the policy rate will only sustain the increase.”

“Now once, interest rates go up investors will see that if I invest in fixed income security and I earn a higher interest rate annually over the period of a fixed-income investment that assures me of a certain return which is not guaranteed on the stock market. So you will start to see investors moving away from the stock market to lock their capital in a higher interest-bearing investment like fixed income securities,” he noted.

Bank of Ghana increases policy rate to 17%

The Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has increased the policy rate by 250 basis points to 17 percent on account of rising inflation coupled with the local currency rapidly diminishing in value against major trading partners.

This is the first time the Central Bank has increased the key rate since November of last year.

The rate, which is of keen interest to businesses, signals the rate at which the Central Bank will lend to commercial banks. It also subsequently influences average lending rates on loans to individuals and businesses.