As Ghana’s inflation rate continues to drop, an economist at Pentecost University, Dr. Paul Appiah Konadu, has backed the recent upward adjustments in Treasury bill (T-bill) rates, describing them as a necessary correction to restore investor confidence and ensure positive real returns.
Dr. Appiah Konadu observes that for many months, Ghana’s T-bill rates were trailing inflation, offering negative real returns to investors and weakening demand for government short-term securities.
This negative return has made the government bills unattractive to investors who are dumping t-bills for other investment opportunities.
Checks by The High Street Journal with industry players reveal that investors are now ditching the government bills in favour of the Bank of Ghana bills which are offering higher yields.
This waning investor confidence has resulted in the consistent undersubscription of the government’s target, putting the financing of recurrent expenditure in jeopardy.
In an interview with The High Street Journal, the economist explained that, “I think T-bill rates are falling to a level where investors are probably not finding it attractive to invest. More especially when the rate was lower than the inflation rate. Because when the T-bill rate is lower than the inflation rate, what that means is that the real return is negative.”
Turning Point: Real Returns Go Positive
With Ghana’s inflation for June 2025 falling sharply to about 13%, and T-bill rates now ranging between 14% and 16%, the economist observes that the additional hike in yield offers a real return on investment in government bills.
Thus, the hike, coupled with the drop in inflation, has resulted in positive returns. This, Dr. Appiah Konadu says, is vital for restoring market confidence and directing investors back to the government bills.
He says that now that inflation hovers around 13%, and a T-bill rate of 15% or more, there’s at least a 1.5% to 4.5% real return, and that’s attractive to investors again.
This reversal, he noted, is not just encouraging for portfolio investors but also signals that Ghana’s inflation-targeting regime is working.
The Inflation-Interest Rate Balancing Act
While he backed the current rates as economically sound in light of falling inflation, Dr. Konadu also warned that interest rates must not be driven solely by high government borrowing.
He explains that interest rates reflect the cost of borrowing. If the government borrows too much, it creates artificial upward pressure on T-bill rates. That can choke the private sector.
He believes the current positive yield environment gives the government room to scale back its borrowing, to avoid destabilising the progress made on inflation.
“What the government also has to do is reduce its borrowing. Because once the government reduces their borrowing, if the demand is low, then there is no pressure on interest rates to rise. But mind you, interest rates are the cost of borrowing. When the government borrows, that is the price the government has to pay. And so if the government reduces its borrowing, that will also help to cut the pressure on interest rates to rise,” he advised.
A Path to Single-Digit Inflation?
Dr. Konadu also expressed hope that if these dynamics hold, Ghana is well-positioned to achieve single-digit inflation by the end of 2025, aligning with the Bank of Ghana’s policy goals.
“I am hopeful that the Bank of Ghana will be able to meet its target of reducing inflation to a single digit by the close of the year, which will make sense with a T-bill rate of 15%, 17%, or 18%,” he said.
Dr. Konadu’s comments come at a critical time as the Monetary Policy Committee (MPC) prepares to meet ahead of the Mid-Year Budget Review. He is therefore advocating that the economic managers ensure that interest rates reflect inflation realities, not fiscal strain.
