The year-on-year decline in the rate of inflation from 10.4 percent to close the year 2020 to 9.9 percent in January 2021 is likely to boost investor sentiment on the financial market.
Inflation in simple terms is the rate at which prices of goods and services change making it an important measure of financial well-being. The decline in the rate of inflation also falls within the Bank of Ghana’s medium-term target of 8±2 percent.
According to Analysts, this decline in inflation rate at the start of the year is sign of positive market sentiment meaning the overall attitude of investors towards the financial market is likely to boost. Also, this strengthens confidence in the current monetary policy stance as being appropriate amidst the pandemic.
This will also lead to a decline treasury yields as seen at the current weekly auction of government securities by the Central Bank. For instance, at the recent weekly auction held, the interest rate on Treasury bills maturing within 91 days declined to an average rate of 13.23 percent compared to 13.82 percent for the immediate past treasury sale. For Treasury bills maturing within 182 days, average interest rate declined to settle at 13.96 percent as against previous auctions 14.01 percent.
Similarly, for discount rates, the government auctioned GH¢1,103.15 million in three-month bills dominating the treasury bill sales at an average price of 12.81 percent with the lowest accepted price being 12 percent and the highest being 13.4 percent. This discount rate is lower than that of the immediate past auction where the average price lingered between 13 percent and 13.45 percent.
Likewise, for the six-month bills, GH¢121.8 million was auctioned at a discount rate extending from 12.95 percent to 13.15 percent per annum as against a range between 13 percent and 13.17 percent for last time’s auction. Also, the discount rate reflects that the bills sell for less than face value.
The 364-Day bill also had GH¢102.25 million issued at a fairly higher interest rate compared to the other bills because of the time value of money. This bill had an average discount and interest rates of 14.43 percent and 16.86 percent respectively.

From the start of year 2021, Treasury bill sales have witnessed oversubscriptions with government continually exceeding its target. These figures further indicate investors’ interest in the short end of the market as purchase of government’s short term securities continue to soar with more preference for bills maturing within 91 days.
Also, on the stock exchange, market sentiment appears bullish as benchmark indexes keep improving with current year to date return of 11.57 percent for the entire market and 5.14 percent on financial sector stocks mainly those from the insurance and banking sectors.
Although headline inflation has declined slightly, Analysts hold that some of these figures are distorted by the unusual pandemic patterns of spending. Also, the rate of decline in inflation is likely to be undermined by the spike in crude oil prices which is now hovering around US$60 per barrel on the world market.
Finally, with pandemic pressures on the economy remaining following the second wave of COVID-19, there are fears that such declines in inflation may be fuelled by more job losses increasing unemployment rate in the near term.