The interest rates on Treasury bills dip slightly at the recent weekly auction of the Government of Ghana securities.
At the auction, there were bills maturing within 91, 182 and 364 days. Also, average interest rate on these bills were 13.05%, 13.86%, and 16.76% respectively. Comparatively, this is down by 0.22%, 0.03%, and 0.04% in that order to previous auction.
Additionally, the three-month Treasury bill rate serves as a benchmark for the lending rate. Therefore, individuals and businesses may expect a decline in the interest rate that banks charge on loans. However, Mr. John Awuah, Chief Executive Officer (CEO) of Ghana Association of Bankers says lending rates are set considering other factors like environmental conditions.
Discount Rates
The discount rate reflects that the bills sell below face value and investors were patronizing more of three-month bills. More so, bids worth GH¢1.15 billion came in at a rate ranging between 12.5% – 12.87%. However, the central bank went on to accept only GH¢1.14 billion, rejecting bids exceeding 12.8%.
Another GH¢ 90.31 million sales were made for six-month bills at an average discount rate between 12.75% – 13.0%. All bids worth GH¢ 9.47 million that came in at a price beyond 13% were rejected.
Conversely, for the 364-Day bill, there were a total of bids worth GH¢95.82 million. Also, the government went on to accept a minimum discount rate of 13.79 percent extending to a maximum rate of 14.5 percent. There were no records of rejection.
In total, bids worth GH¢17.86 million coming in for both the three-month bills and six-month bills had a rejection from the Bank of Ghana. According to analysts, this could be as a result of some of bids coming in at higher rates than what the government is willing to borrow at.
Furthermore, these figures indicate investors’ interest in the short end of the market. Evidently, purchase of short-term securities continue to soar with more preference for bills maturing within 91 days.
Again, from the start of year 2021, Treasury bills sale have been oversubscribed with government continually exceeding its target. For instance, the Central Bank had bids worth GH¢1349.01 million coming in as against its target amount of GH¢1252 million.
William Mensah, non-Executive director of Ecobank Capital holds that this spike in investors’ interest may be as a result of uncertainties regarding the pandemic. This is pushing investors to look for a safe haven, hence, the purchase of government bills which are less risky.
Crowding out of Private Sector
For this week, the government projects to borrow GH¢ 1,100 million at its weekly securities auction. The government needs to borrow to finance its budget, repay maturing debt and cover its budget deficits. However, there are fears that this consistent borrowing from the domestic market may crowd out the private sector’s access to loanable funds.
Mr. David Tetteh, CEO of CAL Brokers says if government sticks to its borrowing calendar, the private sector will have enough funds for investment.
Despite vaccine arrival, Analysts anticipate that there is the risk of a stronger than expected rise in inflation. This is as a result of the spike in demand once vaccines are widely distributed.
