- BoG absorbs GH¢6.53bn in 14-day bills at 10.50% interest
The Bank of Ghana has sold GH¢6.53bn in short-term securities as it intensifies efforts to absorb excess liquidity from the banking system without raising its benchmark interest rate.
Results of Tender 881, held on September 30, show that the central bank sold GH¢6,533.38m in 14-day Bank of Ghana bills at a weighted average annual interest rate of 10.4955 per cent.
The corresponding weighted average discount rate was 10.4533 per cent.
Accepted discount-rate bids ranged narrowly from 10.4000 per cent to 10.4578 per cent, translating into interest rates of between 10.4418 per cent and 10.5000 per cent.
The narrow range indicates relatively close agreement among participating financial institutions about the return required for placing surplus funds with the central bank for two weeks.
The size of the transaction, however, is the more important signal.
At GH¢6.53bn, the operation points to substantial short-term liquidity within Ghana’s banking system. Rather than allow those funds to remain available for immediate deployment, the central bank has temporarily withdrawn them through its own securities.
This is part of the Bank of Ghana’s liquidity-management framework and should not be confused with Treasury bill borrowing by the government.
Treasury bills finance the state’s budgetary requirements. Bank of Ghana bills are issued principally for monetary-policy purposes: they allow the central bank to withdraw excess liquidity that could otherwise place pressure on inflation, the foreign-exchange market or short-term interest rates.
The auction comes shortly after the Monetary Policy Committee maintained the policy rate at 14 per cent for the third consecutive meeting.
The decision to hold the benchmark rate suggested that the central bank did not consider a broad interest-rate increase necessary, despite renewed pressure on the cedi and continuing external risks.
The GH¢6.53bn bill sale shows, however, that a steady policy rate does not amount to passive monetary policy.
The Bank of Ghana can maintain the headline rate while tightening liquidity conditions through open-market operations. This allows it to target surplus funds more directly without increasing borrowing costs across the entire economy.
That distinction is important for businesses and banks.
A policy-rate increase would transmit more broadly through lending rates, potentially raising the cost of credit for households and companies. Short-dated BoG bills instead target liquidity held primarily by financial institutions.
The approach allows the central bank to defend monetary stability while limiting the risk that another policy-rate increase undermines the gradual recovery in private-sector credit.
But it also exposes a tension at the heart of monetary policy.
Banks holding large volumes of liquidity have the option of placing funds in virtually risk-free central bank instruments instead of extending credit to businesses. Although the BoG bill rate of about 10.50 per cent is below the 14 per cent policy rate, it still offers a secure return over a very short period.
For banks, the decision is therefore not simply between holding idle cash and lending. It is between lending to businesses with credit and repayment risks or earning a predictable return from the central bank.
At the weighted average interest rate of 10.4955 per cent, the GH¢6.53bn operation implies an estimated interest cost of approximately GH¢26.3m over the 14-day term, based on a simple annualised calculation.
That cost is the price of temporarily removing liquidity from the financial system.
If similarly large operations are repeated throughout the year, the cumulative monetary-policy cost could become significant.
A single GH¢6.53bn operation rolled over continuously at broadly the same rate would imply an annualised interest burden approaching GH¢686m, although the actual cost would depend on the size, frequency and pricing of subsequent auctions.
Such expenditure is not automatically wasteful. Central banks incur costs in pursuing price and currency stability, just as governments incur costs when borrowing to finance their operations.
The relevant question is whether the liquidity absorption is proportionate to the risks it is intended to manage and whether the underlying source of the surplus is temporary or persistent.
If the excess funds arise from short-term fiscal disbursements, foreign-exchange transactions or seasonal flows, a 14-day instrument offers an appropriate temporary response.
If, however, liquidity remains structurally high and the central bank must repeatedly issue large volumes of bills, the interest cost could weigh on its balance sheet and complicate efforts to restore financial strength.
The auction also carries implications for the foreign-exchange market.
The cedi has recently weakened towards GH¢11.70 to the US dollar as corporate demand from commerce and energy importers has exceeded available interbank supply.
Excess cedi liquidity can add to that pressure if banks or their clients use domestic funds to seek foreign currency.
By locking up GH¢6.53bn for 14 days, the central bank reduces the immediate pool of funds that could migrate into the foreign-exchange market.
This does not resolve Ghana’s underlying demand for dollars. Importers still require foreign exchange to pay for petroleum products, machinery, raw materials and consumer goods.
Liquidity operations can moderate the intensity of demand, but they cannot permanently substitute for stronger export receipts, remittances, investment inflows and adequate reserves.
The transaction should therefore be understood as a stabilisation instrument rather than a permanent solution to currency pressure.
The weighted average interest rate of 10.4955 per cent was just below the highest accepted rate of 10.50 per cent.
This suggests that a significant share of the accepted funds was priced towards the upper end of the range.
The result may indicate that banks were willing to place large sums with the central bank but sought close to the maximum accepted return.
The bill’s rate was about 350 basis points below the policy rate. That discount is partly explained by the instrument’s short maturity and low risk.
For the Bank of Ghana, raising GH¢6.53bn below the policy rate makes the operation less expensive than it might otherwise have been.
For banks, the attractiveness lies in the combination of safety, liquidity and predictability. Funds are committed for only two weeks, allowing institutions to reassess their positions quickly when the bill matures.
The auction result provides no information on the total value of bids submitted, making it impossible to calculate the level of oversubscription or the proportion of demand accepted.
It would therefore be incorrect to conclude from the published result alone that banks offered exactly GH¢6.53bn or that the central bank rejected additional bids.
What can be concluded is that the Bank of Ghana considered it necessary to withdraw GH¢6.53bn from the system and that financial institutions were prepared to place that amount at an annualised interest rate of about 10.50 per cent.
The operation illustrates the delicate balance confronting the central bank.
It must prevent surplus liquidity from intensifying currency and inflation pressures while avoiding monetary conditions so restrictive that private credit and economic activity are weakened.
For now, the Bank of Ghana appears to be pursuing that balance through targeted liquidity absorption rather than a higher policy rate.
The durability of that strategy will depend on what happens when the GH¢6.53bn matures after 14 days. If the funds are released back into the system without creating fresh pressure, the operation will have served its temporary purpose.
If another large bill is required immediately, it will suggest that excess liquidity is not merely passing through the banking system it is becoming a persistent monetary-policy challenge.
