Ghana’s inflation rate of 10.5 percent ranks it 12th among 20 key Sub Saharan African countries tracked by Joy Business.
Despite the relatively low inflation, cost of credit still remains high at an average of about 22 percent per annum or more than two percent per month.
Inflation has witnessed a relatively low and stable rate for the last three years but lending rates is still high in a country which touts itself as the gateway to Africa.
Inflation is a key determinant in deciding the policy rate – the rate at which commercial banks borrow from the Bank of Ghana. It is also one of the important factors which banks consider in pricing their loans.
However, the question many analysts and market watchers have been asking is the spread between inflation rate and lending rate.
For instance, Nigeria has an inflation rate higher than that of Ghana. Nevertheless, policy and lending rates hover around 12.5 percent and 17 percent respectively, lower than that of Ghana.
In the Francophone West African countries, inflation and lending rates are very low, a situation that has compelled some investors to move to the Ivorian market in which cost of doing business is relatively better.
Indeed, the Ivory Coast has the lowest inflation rate of one percent in Sub Saharan Africa, followed by Botswana and Congo Brazzaville with inflation rates of 1.78 percent and 2.30 percent respectively.
Meanwhile, Zimbabwe still has the highest inflation rate of over 300 percent in Sub Saharan Africa, whilst Sudan has more than 120 percent inflation.
A marginal drop in food inflation in the month of August 2020 pushed inflation down to 10.5 percent.
The decline which is the lowest rate since April 2020,was 0.4 percent lower than the previous month rate of 11.4 percent.
The decline in inflation comes as a good omen to the economy, as interest rates will generally remain relatively same, whilst cost of borrowing will also likely not change, although the fiscal economy need some improvement.