Expert identifies key factors for potential T-Bill rate reduction
Managing Partner for Treasury Hub Ghana, Kwaku Oppong, has enumerated factors that will cause a significant drop in interest rates on T-Bills.
According to the Managing Partner for Treasury Hub Ghana, Kwaku Oppong, rates on T-Bills can only drop if the cedi appreciates against the greenback in the months ahead.
Additionally, inflation has to significantly drop forcing the Central Bank to also significantly reduce its monetary policy rate which serves as the benchmark interest rate on Government debt securities, particularly the T-Bills.
Speaking during NorvanReports’ X Space Open Forum themed, “To Restructure or Not To Restructure T-Bills”, Mr Oppong stated that, “Govt (MoF) borrows at T-bill rates, whereas Central Bank (BoG) borrows at the monetary policy rate (MPR). MoF cannot be borrowing lower than where BoG borrows (currently at 30%). But how can BoG borrow cheaper? By reducing the MPR. The MPR can also only be reduced if inflation which is 40+ comes down.
“But inflation can only come down if the FX rate depreciation (which is about 50% y/y) is eased. Until all these macros align, MoF cannot unilaterally ‘cut’ the T-bill rates.
“In sum, the Cedi has to appreciate, inflation has to print lower, then MPR can be reduced and consequently T-bill rates will trend downwards.”
Also speaking during the Open Forum was the Editor of NorvanReports Snr Fuaad Dodoo who, underscoring the urgent need for a reduction in the high and unsustainable interest rates on T-Bills, urged Government to reject bids tendered by investors in order to drive down interest rates on T-Bills to more sustainable rates of 10% to 14% as against the current 28% to 32% rates on the 91, 182 and 364 day T-Bills.
Acknowledging that the reduction in T-Bills rates is likely to cause disinterest in T-Bills leading to undersubscription of the short-term debt instruments, it is a necessary evil that which Government must undertake.
Total outstanding T-Bills issued by Government as of end-August 2023 stood at GHS 55bn representing 28% of the country’s total GHS 196bn domestic debt.
With interest rates on T-Bills hovering between 28% and 32%, Government is expected to make interest payments above GHS 17bn per annum.
