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Government Misses Treasury Bills Target Narrowly, But Interest Rates Drop

Treasury bill target was narrowly missed but interest rates on the bills dropped as inflation comes down

The Government of Ghana narrowly missed its borrowing target in the latest treasury bill auction held on June 14. Aiming to raise GH¢4.9 billion, the government secured about GH¢4.8 billion, falling short by just 1.3%.

Despite not meeting its target, the government offered lower interest rates across all three treasury bills. The 91-day bill rate dropped by 17 basis points to 24.86%, the 182-day bill rate decreased by 14 basis points to 26.82%, and the one-year note rate fell by 11 basis points to 27.81%.

Typically, when the government struggles to meet its borrowing targets, it raises interest rates or maintains them at current levels. However, this time the  rates were reduced by slightly significant margins. Analysts consulted by The Accra Times explained that the decrease in interest rates may be attributed to the drop in year-on-year inflation from 25% in April to 23.1% in May.

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With inflation down to about 21%, the real return on the 91-day treasury bill is now 3%, compared to just 0.3% a week ago when inflation was 25% and the 91-day bill rate was 25.03%. This implies that investors are getting more value for their investments despite the drop n interest rates.

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Analysts predict that interest rates on all three bills could decrease further in future auctions due to the lower inflation rate. However, a significant reduction in interest rates could be hindered by the government’s appetite for large borrowings. The government has consistently struggled to meet its treasury targets whenever it aims to borrow close to GH¢5 billion or more, sometimes resulting in higher rates to attract more investor funds.

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Investor preference for shorter-term bills remains unchanged. Approximately 77.9% of the total amount raised came through the 91-day bill, while the one-year note, despite offering a higher interest rate, accounted for only 2.9% of the total amount realized.

With limited access to external borrowing, the government is increasingly reliant on treasury bills to finance many of its programs, many of which extend beyond the three-month period covered by the 91-day bills. This reliance on short-term borrowing for long-term projects creates a mismatch, forcing the government to borrow more frequently and worsening the country’s already high domestic debt.

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