The Bank of Ghana (BoG) has absorbed a combined GH¢19.53 billion through two separate 14-day bill auctions within three days, highlighting the scale of the central bank’s ongoing efforts to manage liquidity within the banking system.
The two operations, conducted on October 5 and October 7, saw the central bank sell GH¢10.524 billion and GH¢9.008 billion respectively. Although the volume declined by about GH¢1.52 billion between the auctions, the return offered to participating institutions barely changed.
The development comes at a time when the central bank is maintaining its policy rate at 14%, while short-term market rates remain significantly lower. The latest bill sales therefore offer a closer look at how the BoG is managing excess liquidity beyond the headline monetary policy rate.
GH¢19.53bn Moves Through Two Auctions
The first auction on October 5 resulted in GH¢10.524 billion in 14-day BoG bills being sold. Two days later, another GH¢9.008 billion was issued.
Combined, the two transactions amounted to GH¢19.53 billion in gross securities issued.
The second auction represented a 14.4% decline in the amount sold compared with the October 5 operation. However, interpreting the decline as weaker demand would be premature.
The auction results do not disclose the total value of bids submitted, an announced auction target or the value of rejected bids. Consequently, there is insufficient information to determine whether either auction was oversubscribed or whether investor appetite weakened.
The lower amount could instead reflect the central bank’s assessment of liquidity conditions at the time of each auction.
Government cash movements, maturing securities, foreign exchange operations and transactions through commercial banks’ settlement accounts can all influence the amount of liquidity available in the financial system.
BoG Keeps 10.5% Yield Almost Unchanged
While the volume shifted substantially, pricing remained remarkably stable.
The effective annual interest rate increased marginally from 10.4972% on October 5 to 10.4987% on October 7. That represents a movement of only 0.0015 percentage points, equivalent to 0.15 basis points.
The weighted-average discount rate followed the same pattern, rising from 10.4550% to 10.4565%.
Both auctions recorded discount bids ranging from 10.4% to 10.46%, with corresponding interest-rate equivalents ranging from 10.44% to 10.5%.
The identical ranges suggest that the BoG maintained a firm pricing corridor across both operations despite changing the volume of securities issued.
The two instruments were also separate securities rather than a reopening of one existing issue. The October 5 bill carried ISIN GHCBAGH01504, while the October 7 instrument was identified as GHCBAGH01520.
GH¢19.53bn Does Not Mean GH¢19.53bn Net Withdrawal
The headline figure is significant, but it needs to be interpreted carefully.
The GH¢19.53 billion represents the gross value of securities issued by the BoG. It does not necessarily mean that the same amount of liquidity was permanently removed from the banking system.
If previous BoG bills matured during the period, repayments would have returned funds to banks and other eligible institutions. New bill issuance could therefore have replaced some of those maturing securities.
The actual net sterilisation effect would depend on the value of maturities and other liquidity injections or withdrawals occurring around the auctions.
Even with that qualification, the scale of the operations remains substantial. Banks and other eligible counterparties placed sizeable amounts of temporary cash into two-week central bank instruments at returns of approximately 10.5%.
Short-Term Bills Offer Banks a Safe Cash Parking Option
The appeal of the securities lies partly in their short maturity.
Institutions with temporary surplus funds can place those balances in BoG bills without locking up their money for an extended period. That makes the instruments useful for liquidity management, particularly when banks are balancing short-term cash positions against lending, settlement and other obligations.
At the applicable rates, the October 5 issue carries an estimated simple interest cost of about GH¢42.36 million over 14 days. The October 7 issue could generate an estimated GH¢36.27 million in interest costs over its 14-day tenor.
Together, the two transactions could therefore cost approximately GH¢78.63 million over their respective periods, subject to final settlement and pricing calculations.
That cost represents the price associated with temporarily absorbing liquidity from the financial system.
Policy Rate Gap Draws Attention
The auctions also arrive after the Monetary Policy Committee maintained the policy rate at 14% for a third consecutive meeting.
At around 10.5%, the effective yields on the BoG bills are approximately 350 basis points below the policy rate. They are also only modestly above the interbank rate of about 10.2%.
The difference provides an important signal about prevailing short-term market conditions. While the policy rate sets the broader monetary stance, actual money-market conditions can be influenced by the amount of liquidity circulating among banks.
By issuing its own securities, the BoG can absorb excess funds and influence short-term interest rates, supporting the transmission of monetary policy through the financial system.
Liquidity Management Meets Cedi Pressure
The operations also have implications for the foreign exchange market.
The cedi has weakened to approximately GH¢11.83 against the US dollar, although exchange-rate movements are influenced by several factors, including petroleum imports, commercial payments, export proceeds and the availability of foreign exchange.
Reducing excess cedi liquidity could help contain one potential source of foreign exchange demand. The relationship, however, remains indirect and should not be interpreted as evidence that the bill auctions alone determine the cedi’s performance.
What stands out from the two auctions is the combination of large volumes and remarkably stable pricing.
The BoG sold GH¢19.53 billion in separate 14-day securities within three days, while the effective yield moved by only 0.15 basis points.
The coming auctions will show whether the recent GH¢9 billion to GH¢10.5 billion range represents a sustained feature of the central bank’s liquidity management strategy or whether the October operations were responses to temporary cash conditions across the banking system.
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