There is another positive development in the short-term bills market as the government exceeded its borrowing target amid dropping interest rates.
Although the government for many consecutive weeks has been exceeding its target, it did so amid rising interest rates posing a risk to the cost of borrowing from the short-term bills market.
The latest auction results from the Bank of Ghana (BoG) reveal that the government exceeded its borrowing target again by 22.50% last week. This marks the fourth consecutive oversubscription of government bills right from the week of the swearing-in of the new administration.
The government planned to borrow an amount of GH¢ 6.5 billion last week. However, a total of GH¢9.4 billion bids were tendered. Out of the total bids tendered, only GH¢ 8.0 billion were accepted exceeding the target by GH¢ 1.5 billion. This represents an oversubscription of 22.5%.
The auction results further reveal that for the 91-day instrument, GH¢5.6 billion bids were tendered but only GH¢ 5.2 billion were accepted representing 65.3%. Moreover, GH¢1.5 billion bids were tendered for the 182-day bill but only GH¢ 531 million were accepted representing just 6.65% of the total bids accepted. Meanwhile, the 364-day instrument also recorded GH¢2.3 billion bid tendered as GH¢2.2 billion of the bids were accepted marking 28% of the total bids accepted by the government.
This massive race for the government’s short-term instrument came amidst dropping interest rates after many weeks.
The rate on the 91-day instrument dropped from 28.515% to 28.413%. In addition, the rate of the 182-day bill also recorded a drop from 29.066% to 28.898% while the interest rate on the 364% instrument also saw a decline from 30.408% to 30.370%.
This oversubscription amidst dropping rates comes as very good news for the economy. Conventionally, the drop in rates is expected to scare investors, however, the oversubscription amid the drop signifies that investor confidence in the economy after the new administration has been bolstered.
Should this new development continue, the government is set to enjoy low-cost borrowing which will reduce the rate of debt accumulation and minimize repayment obligations on the maturity of these bills.
Will the trend of dropping interest, which is currently higher than the policy continue? Only the weeks ahead can tell.
Meanwhile, the government plans to raise another GH₵ 7.3 billion this week through the auction of additional t-bills in Ghana.
