A strange game of musical chairs is happening inside Ghana’s financial sector, and it is changing how commercial banks make their money.
Ordinarily, when you want to make a safe investment in Ghana, you buy a Government Treasury Bill (T-bill). For years, banks and individuals made huge profits doing this. But recently, T-bill rates have taken a massive dive, slumping to under 5%.
Yet, curiously, commercial banks are still declaring strong profits. How? The answer lies with the regulator. While the central government is paying low rates on T-bills, the Bank of Ghana (BoG) is quietly stepping in, borrowing money from banks at much higher rates through what are called Open Market Operations (OMO).
What is OMO, and Why is BoG “Feeding” the Banks?
Think of OMO as special, short-term savings certificates that only banks can buy from the central bank.
Right now, the Bank of Ghana has a big mission: it wants to keep the cedi stable and protect the economy from global oil shocks. To do that, it needs to make sure commercial banks don’t have too much spare cash lying around to buy up US dollars.
To suck that cash out of the system, the BoG is offering banks a sweet deal. It is telling banks: “Don’t lend to the government at 5% through T-bills. Give your cash to us instead, and we will pay you a much higher rate closer to our 14% policy rate (above 10%).” Though the current OMO rate is significantly lower than the 25% offered last year, it is still high compared to the current T-bill rates.
Naturally, the banks are biting. Instead of pumping money into the regular economy or buying low-yielding T-bills, they are parking billions of Cedis directly with the BoG. This high-yielding OMO is effectively “feeding” the banks, keeping them highly profitable without them having to take big risks.
The Reality Check: What This Means for the Economy
While this strategy is working perfectly to keep the cedi stable, it creates two major distortions in the local market:
The Government Saves Money, But Investors Lose out
Because T-bill rates have slumped, the Ministry of Finance is celebrating. It can now borrow money very cheaply to fund the national budget. However, for everyday Ghanaians, pension funds, and asset managers who rely on T-bills for investment income, returns have dried up.
The Private Sector Still Faces Costly Credit
You would think that with T-bill rates dropping below 5%, banks would drastically slash their loan rates for local businesses. But they aren’t. Because banks can easily park their money with the BoG at higher OMO rates, they have no incentive to offer cheap loans to businesses. If a local manufacturer wants a loan today, banks will still charge them high interest rates, arguing that their baseline cost of money is anchored to the BoG’s high rates. Ultimately, the headline tells the story: the government’s T-bill rates have crashed, but the central bank is keeping bank coffers full by borrowing from them at a premium. It is a highly effective shield for the cedi, but one that keeps local commercial loans expensive for the average business owner, and potentially piling up debt for the Central Bank.
