The Ghanaian government barely exceeded its treasury bills target by 1.7% during the recent auction, raising GH¢4,078.2 million, just GH¢68 million more than its GH¢4,010 million goal. This modest oversubscription comes after interest rates were increased across all three treasury instruments.
The interest rates on the 91-day and 182-day treasury bills were hiked to 26.56% and 27.58%, respectively, while the one-year note crossed the 29% threshold to settle at 29.03%. These increases are part of the government’s strategy to attract more investors, following the Bank of Ghana’s reduction of the policy rate from 29% to 27%. This has created mixed signals in the market, as interest rates on treasury instruments continue to rise, despite the central bank’s rate cut.
The 91-day bill remained the most attractive, accounting for 81.6% of the total funds raised, while the one-year note was the least popular, contributing only 4.9%. Despite these challenges, the government has set a higher borrowing target of GH¢5.6 billion for the upcoming auction on November 8. However, achieving this may prove difficult unless interest rates increase further to entice investors.
Contextual Insights:
Government’s reliance on treasury bills as a key borrowing tool reflects its current fiscal constraints, especially as external sources of funding remain limited. The ongoing rise in domestic interest rates indicates that the government is using higher yields to attract investors to plug budget deficits, despite the risks of rising debt servicing costs. With longer-term instruments, like the one-year note, struggling to attract buyers, the government’s heavy dependence on short-term instruments adds potential rollover risks in the future.
The balancing act between keeping borrowing costs sustainable and satisfying market demand will likely dictate the government’s strategy in future auctions.
