- Treasury Bill Influence on Ghana Reference Rate Raises Credit-Pricing Concerns
Ghana’s effort to reduce borrowing costs may require more than lower inflation and declining Treasury bill yields. It may also require reconsidering the benchmark through which movements in government borrowing costs are transmitted into the price of credit for businesses and households.
A proposal by economists Williams Kwasi Peprah and Fred Bortey Kyeremeh argues that the Ghana Reference Rate should directly incorporate banks’ deposit costs instead of relying on the reserve-adjusted 91-day Treasury bill rate. Their case raises a fundamental question: should the starting price for private-sector loans reflect what banks pay for funds or what government offers investors?
The existing Ghana Reference Rate combines the Bank of Ghana’s monetary policy rate with a 40 per cent weight, the interbank rate at 20 per cent and a reserve-adjusted 91-day Treasury bill yield at 40 per cent. Commercial banks add borrower-specific risk premiums and other charges when pricing individual loans.
Although the arrangement provides a common industry benchmark, its composition gives government financing conditions considerable influence over private credit. Treasury bill yields respond to auction demand, government cash requirements, fiscal expectations and investors’ appetite for sovereign risk. These factors are relevant to banks, but they do not directly measure the cost of mobilising customer deposits.
The reserve adjustment magnifies that influence. With a cash reserve ratio of 20 per cent and an illustrative cash-in-vault ratio of 2 per cent, a one-percentage-point increase in the Treasury bill yield raises the formula-based reference rate by about 0.513 percentage points. Equivalent increases in the policy and interbank rates add 0.4 and 0.2 points respectively.
This means a component carrying a stated 40 per cent weight can have a larger immediate effect than the policy rate. Borrowers may consequently face higher floating loan rates after a Treasury auction reprices government debt, even where their creditworthiness and the policy stance have not changed.
An analysis covering 102 monthly observations from April 2018 to September 2026 found that the Treasury bill component, including its reserve adjustment, accounted for 78.8 per cent of the variation in monthly changes in the formula-based reference rate. The policy rate accounted for 12.6 per cent and the interbank rate 8.6 per cent.
That result does not mean Treasury bills represent 78.8 per cent of every lending rate. Neither does it establish that the reference rate causes every movement in borrowing costs. It nevertheless indicates that the benchmark’s historical behaviour has been dominated by government securities despite its apparently balanced formula.
The consequence is a potentially damaging feedback loop. When government borrowing pressure pushes Treasury bill yields higher, the reference rate can also rise. Private borrowers then face more expensive credit, banks may prefer relatively safe government paper, and productive investment weakens. Reduced private activity can constrain tax revenue, reinforcing the fiscal pressure that contributed to higher yields.
Replacing the Treasury bill input with deposit costs could align the benchmark more closely with banks’ actual funding expenses. Deposits constitute a central source of funding for Ghanaian banks, although institutions differ significantly in their mix of current accounts, savings accounts, fixed deposits and wholesale liabilities.
The proposed reform would not automatically make loans cheaper. Using August 2026 market inputs, the authors estimate that the existing formula produces 10.40 per cent. If the hypothetical deposit cost were 4 per cent, the revised formula would yield 9.69 per cent. At a 6 per cent deposit cost, it would rise to 10.72 per cent, and at 8 per cent it would reach 11.74 per cent.
The argument is therefore about accuracy and transparency, not an engineered reduction in rates. A deposit-based benchmark could increase when competition for funds intensifies and decline when funding costs ease. Its merit would lie in representing the liability banks must pay for rather than the return available from lending to government.
However, measuring deposit costs presents difficult choices. An industry benchmark must include zero-interest current accounts, savings balances, fixed deposits and other eligible funding under a consistent definition. Otherwise, banks could report incomparable figures or structure deposits to influence the published rate.
The data would require independent verification. A simple average of advertised deposit rates would be inadequate because it would ignore the actual volume held at each rate. The appropriate measure would likely use total interest accrued relative to average eligible deposit balances, weighted across banks and protected against manipulation or reporting delays.
There is also a conceptual question. The reference rate currently blends funding conditions, monetary policy and the opportunity cost of lending. Removing Treasury bills would reduce their direct mechanical influence, but government yields could still affect deposit pricing as savers demand competitive returns. The reform would alter the transmission channel, not separate banks completely from fiscal conditions.
The authors consequently recommend that the Bank of Ghana and Ghana Association of Banks publish the proposed formula alongside the existing benchmark for at least three months. Banks would submit interest accruals and average deposit balances under a common reporting standard, allowing regulators and market participants to compare both measures before making a permanent change.
Greater disclosure is necessary even if the existing formula is retained. Each monthly release should show the underlying inputs, reserve adjustment, stated weights and effective sensitivities. Borrowers deserve to understand why the benchmark changes and how that movement affects loan contracts.
Reference-rate reform cannot resolve Ghana’s credit constraints because loan pricing also reflects inflation, operating costs, credit risk and capital requirements.
Still, benchmarks matter because they shape expectations and distribute economic pressure. A rate dominated by Treasury bills risks turning fiscal stress into a private-credit penalty. A deposit-based alternative may provide a clearer measure of banks’ funding costs, but only if the data are credible and the methodology cannot be gamed.
The strongest course is therefore empirical rather than ideological: calculate both rates, publish the evidence and test which better explains banks’ marginal funding costs and lending behaviour. Ghana should not redesign its benchmark merely to produce a lower number. It should build one that borrowers can understand, banks can defend and the economy can trust.
