The yield on the government short-term instrument (T-bill) continues to decline, hitting an average of 17.3% last week.
This is in line with the government’s agenda to significantly reduce the rate in order to minimize the cost of borrowing hence reducing the rate of debt accumulation.
The latest auction result published by the Bank of Ghana also reveals that high demand for the government’s short-term instrument (T-Bill) is gradually declining after several weeks of massive oversubscription.
The target for the government was to borrow a total amount of GH¢8.3 billion. However, the total bids from the three bills amounted to GH¢9.3 billion representing a moderate oversubscription of 12%.
The government only accepted an additional GH¢514.02 million to borrow a total amount of GH¢8.8 billion. This means a total of just GH¢ 490 million of the bids from the 364-day bill was rejected and returned to investors.
The interest rate on all three instruments continued the downward trajectory. The rate on the 91-Day instrument declined from 17.7184% to 15.8624%. The 182-day instrument also declined from 18.6682% in the previous week to 16.9287%, while the 364-day bill also saw a decline from 19.9853% to 18.9653%.
The average for all these bills stands at 17.3% from a higher rate of 18.9% in the previous week.
A source within the government tells The High Street Journal that the aim of the administration is to ensure that the rate on the bills continues to decline to hit a single digit. Considering the trend of the decline, barring any unforeseen circumstances, the target for a single digit rate seems possible.
Although the declining rates come as good news to the government as it gets to enjoy low cost borrowing, other analysts and experts fear that the trend, if not balanced, could result in exchange rate volatility and cause a massive depreciation of the cedi.
It is therefore expected that the Bank of Ghana and the government collaborate to ensure that the development does not disrupt the relative stability of the forex market.
The government has announced plans to raise GH¢6.2billion in the next auction this week. It is quite unclear if the demand will pick up as recorded in previous weeks or will continue in moderation.
