The excess demand for the short-term instrument (T-Bills) continues unabated as the government also continues to return a significant amount to investors.
For over five weeks now, the government has continued to reject a significant amount of bids This has been perceived as another means to beat down the high interest rate, which seems to be working perfectly.
Bank of Ghana’s latest T-bill auction results revealed another massive oversubscription of the government short-term instrument occurred last week. Although the target for the week was GH¢5.7 billion, a total of GH¢10. 3 billion bids were received. This represents an oversubscription of 80%.
The government only accepted GH¢6.2 billion, meaning only an additional GH¢482 million from the excess bids were accepted.
A total of GH¢4.1 billion worth of the bids were rejected by the government and were returned to investors.
Amid the mass demand for the instruments, interest rates on the bids also continued with its downward trend, dropping significantly to reduce the cost of borrowing for the government.
The rate on the 91-day bill dropped from 20.7906% to 17.7184%. The 182-day bill also saw a drop from 22.9851% to 18.9682%. In addition, the rate on the 364-day bill saw a significant decline from 22.6994% to 19.9833%.
The government’s decision to reject excess bids in recent treasury auctions is being hailed as a strategic move to address Ghana’s debt challenges. By limiting borrowing, the approach helps to curb debt accumulation while pushing down interest rates, ultimately reducing borrowing costs.
The persistent oversubscription of treasury bills in recent weeks is largely attributed to a rollover effect, where investors whose bids were previously rejected return with fresh bids in subsequent auctions. With another wave of rejections, analysts anticipate a similar trend in upcoming auctions.
Market watchers link the increased demand for short-term government securities to the suspension of Ghana’s bond market following the Domestic Debt Exchange Program (DDEP). With limited investment alternatives, many investors are shifting toward treasury bills as a more secure option.
Despite adopting a more conservative borrowing stance, the government has announced plans to raise GH¢8.3billion in the next auction. Given the significant liquidity in the system and strong investor appetite for short-term instruments, analysts expect another round of oversubscription.
Falling T-Bill rates could exert pressure on Cedi – BoG Governor
Governor of the Bank of Ghana Dr Johnson Asiamah at the National Economic Dialogue cautioned that the declining T-bill rates though beneficial could trigger a rise in exchange rate volatility if not properly balanced. “Currently, T-bill rates are coming down and it is good to see that. However, there is an emerging risk that if we are not careful, we will see pressure on the cedi going up as a result,” he stated.
