Continuous decline in inflation to lead to reduction in T-Bill rates, says Dr Addison
A continuous decline in headline inflation will lead to reductions in interest rates on T-Bills, says Governor of the Central Bank, Dr Ernest Addison.
Making the assertion during the 114th MPC press briefing on Monday, September 25, 2023, Dr Addison quipped that factors underlying inflation and the continuous decline in inflation, will lead to a fall in the high interest rates on T-Bills.
According to him, despite the high rates on T-Bills, real returns on the short-term debt instruments are still negative given that the rates are below the prevailing inflation rate of 40.1%.
Adding that real returns on T-Bills are likely to return to a positive trajectory by the end of the year as headline inflation rate falls below interest rates on T-Bills.
“As inflation continues to fall, there might be a return to positive yields this year because although rates on T-Bills are high, they still give negative yields because of high inflation,” he stated.
The assertions made by the Governor regarding the decline in interest rates on T-Bills were expressed by the Managing Partner for Treasury Hub Ghana, Kwaku Oppong, who enumerated factors that will cause a significant drop in interest rates on T-Bills.
According to him, 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.
