OUTLOOK FOR FINANCIAL MARKETS AND ECONOMY IN GHANA

OUTLOOK FOR FINANCIAL MARKETS AND ECONOMY IN GHANA  MUCH DEPENDS ON EXTERNAL FACTORS. THIS IS GENERALLY TRUE FOR ALL EMERGING MARKETS. AS IMPORTERS HAVE TO PAY MOST OF THEIR GOODS IN US-DOLLARS, IMPORTS BECOME MORE EXPENSIVE WHEN THE DOLLAR IS STRONG. ON THE OTHER HAND, A WEAKER DOLLAR MAKES IMPORTS CHEAPER. THE SAME ACCOUNTS FOR EXTERNAL DEBTS. FOR DOLLAR-DENOMINATED BONDS, INTEREST IS HIGHERW HEN THE DOLLAR IS STRONG. WHEN THE DOLLAR IS LOWER, INTEREST IS ALSO LOWER. HOW DOES THE NEAR-TO-MID FUTURE LOOK LIKE NOW FOR EMERGING MARKETS, INCLUDED GHANA? THE FEDERAL BANK OF THE UNITED STATES WILL LEAVE THE INTEREST RATES UNCHANGED FOR THE MOMENT. THIS WAS ANNOUNCED ON THE MEETING YESTERDAY:

“…In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

(COURTESY INVESTOPEDIA – THE MARKET SUM 30-01-19)

THIS SHOWS THAT THE FED HAS BECOME CAUTIOUS WITH INTEREST RATE HIKES. HIGHER INTEREST RATES MEAN THAT LOANS BECOME MORE EXPENSIVE. THAT IN TURM MEANS THAT BUSINESSES HAVE TO PAY MORE FOR INNOVATION AND EXPANSION. FOR EMERGING MARKET THAT ALSO MEANS THAT INVESTORS TAKE MONEY OUT OF THESE MARKETS. THEY THEN WILL INVEST IT IN THE UNITED STATES.

THE FACT THAT THE FED IS CAUTIOUS WITH RATE HIKES ALSO MEANS THAT THE DOLLAR GETS WEAKER. A WEAKER DOLLAR HAS ONLY POSITIVE EFFECTS ON EMERGING MARKETS, INCLUDED GHANA. IMPORTS GET CHEAPER, INTEREST ON EXTERNAL BONDS GETS LOWER, AND MORE FOREIGN CAPITAL CAN FLOW INTO EMERGINGS MARKETS.

IT HAS ONLY JUST STARTED, AND WE MUST SEE HOW THE WHOLE ISSUE DEVELOPS. BUT IF THIS DEVELOPMENT GOES ON, FINANCIAL MARKETS AND THE ECONOMY IN GHANA CAN ONLY BENEFIT. OF COURSE, THIS DEVELOPMENT, IF IT COMES TRUE, MUST BE ACCOMPANIED BY DOMESTIC EFFORTS.

LET’S SEE…

 

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