Rising interest rates, inflation: We need a fiscal adjustment program to rein in the hikes – Economic analyst
A faster resolution of the establishment of an economic program with the International Monetary Fund (IMF) to pave the way for a program of fiscal adjustment is the surest bet to control the rise in interest rates and the inflation.
According to the economic analyst who is the head of information at IC Securities, Courage Martey’s interest rates and inflation will not drop any time soon, and therefore an immediate agreement with the Fund will trigger investors’ confidence in the market. financial and moderate other macroeconomic risks.
Speaking to Joy Business, Mr Martey said the recent increase in utility rates will have an impact on inflation in the short term.
“Generally, the path of inflation continues to determine the path of interest rates in the domestic market. So as long as inflation continues to rise, you would expect interest rates to continue to rise as well. increase.
“When you look at the short-term outlook for inflation, it looks like there is still room for improvement as we are just coming out of significant currency shocks in the middle of Q3.  and we also see utility rate hikes being announced or implemented – both for electricity and water. All of these things are going to influence the consumer price index, and that will drive inflation up a bit more before the year-end peak as we expect,” he explained.
He further added that it is difficult to envisage a decline in domestic interest rates before the end of the year.
“What this means for public finances is that the cost of servicing debt will remain high and any additional revenue will continue to be used to pay interest. Thus, fiscal space is expected to remain tight at least for the rest of 2022 and this also calls for a faster resolution of the establishment of an IMF program with ongoing negotiations with the IMF for a fiscal adjustment program “.
To this end, he stressed that “the sooner we put this fiscal adjustment program in place, the more confidence we will sprinkle in the market for investors; and some of that default risk and macro risk pricing should start to moderate and also contribute to lower yields. But that we don’t see in 2022, we only see it after 2022”.
Government sells Treasury bills at 31% as interest rates rise
Interest rates in the short-term Treasury market increased further to reach 31% on September 10, 2022, as investors continued to be interested in short-term securities.
Although the government has exceeded its target for the 13th consecutive week, the cost of repaying these loans will increase.