A quicker resolution to the establishment of an economic programme with the International Monetary Fund (IMF) to pave way for a Fiscal Adjustment Programme is the surest bet to tame the rising interest rates and inflation.

According to Economic Analyst who is the Head of Insights at IC Securities, Courage Martey interest rates and inflation will not come down anytime soon, and therefore an immediate agreement with the Fund will trigger investor confidence in the financial market and moderate other macroeconomic risks.

Speaking to Joy Business, Mr. Martey, said the recent increase in utility tariffs will impact on inflation in the near-term.

“Generally, the path of inflation continues to determine the path of interest rate on the domestic market. So as long as inflation continues to rise, you expect interest rates to also keep looking upwards.

“When you look at the near-term outlook on inflation, it appears there’s still a bit of room for increase because we are just coming out of some significant shocks to the currency in the middle of the 3rd quarter [2022] and we are also experiencing the announced or implementation of utility tariff hikes - both for electricity and water. All of these are going to influence the Consumer Price Index, and this will push up inflation a little more before the end of the year peak as we expect”, he explained.

He further added that it’s difficult to envisage a decline in domestic interest rate before the end of the year.

“What this means for government finances is that debt service cost is going to remain elevated and every additional revenue continues to go into payment of interest. So the fiscal space is likely to remain tight at least for the rest of 2022 and that also calls for a quicker resolution to an establishment of an IMF programme with the ongoing negotiations with the IMF for a fiscal adjustment programme”.

To that end, he stressed that “the quicker we set up this fiscal adjustment programme the more confidence we sprinkle in the market for investors; and some of this pricing in default risk and macroeconomic risk should start to moderate and also aid in decline yields. But this we do not see in 2022, we only see after 2022”.

Government sells Treasury bills at 31% as interest rates rise

Interest rates in the short-term Treasury market rose further to 31% on September 10, 2022, as investors continue to show interest in the short-term securities.

Though government exceeded its target for the 13th week running, the cost of repaying these loans will go up.