The Monetary Policy Committee (MPC) held its 5th meeting of 2022 on the 26th and 27th of September. The committee members voted unanimously to raise the key interest rate.
Likely Impact of Interest Rate Hike
Impact on Customers: Negative and Positive
Higher borrowing cost due to the pass-through effect of higher interest rates. On the other hand, bank customers might see higher savings rate in the bank.
Impact on Inflation: Mild
We are of the opinion that the MPC’s decision might have little impact on taming the burgeoning inflation as adverse supply-side shock continues to fuel inflationary pressure.
Impact on the equities market: Negative
The equities market is expected to become less attractive due to the expected increase in yields in the fixed income in the coming months. The direction of yields in the fixed income market has an inverse relationship with the equities market.
Impact on the fixed income market: Positive
The fixed income market will likely be more attractive, especially at the long end of the yield curve.
Impact on foreign capital flow: Mild
On foreign capital flow, we expect little foreign investor participation due to FX repatriation and exchange rate issues.
Impact on Banks: Negative and Positive
Banks stand to benefit from the higher interest rate environment. However, due to the increase in the cash reserve ratio to 32.5%, banks’ liquidity might come under more pressure.
Disclaimer: This content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Talk to a financial expert before you make an investment move.
There are risks associated with investing in securities. Investing in stocks, bonds, exchange-traded funds, mutual funds, and money market funds involves the risk of loss. Loss of principal is possible.