Interest rates fell across the board on the July 25 treasury bill auction as the 91-day, 182-day, and 364-day bills cleared at 10.8387%, 13.2279% and 14.3050% respectively. This was a huge drop from the 13.7276%, 14.6164%, and 14.7393% recorded in the previous auction.

The significant decline in rates is a combination of the lack of high-yielding fixed income alternatives from the Bank of Ghana (BoG), a strong grip on government spending in the first of the year, and the rapid rate of disinflation following the cedi’s 42% gain against the US dollar this year. The strong cedi and the outlook of stability for the second half of the year has attracted a lot of interest in short-term government borrowing.

A total of GH¢28.1 billion in bids were tendered out of which GH¢15.2 billion was accepted with the rest rejected. With a target of GH¢7.7 billion for this tender, this means the government took in almost double of what it had expected to raise.

With inflation for June coming in at 13.7%, the 10.8% interest rate is a real negative interest rate of almost 3%. This situation is obviously beneficial for the government because it gets to borrow at dirt cheap interest rates, but there is also the fear that it could drive a renewed interest in forex speculation as an alternative investment.

The finance minister, Dr. Cassiel Ato Forson, has hinted at the issuance of new long-dated bonds in the coming months. This would be a welcome addition to the fixed income market as there is clearly a strong market appetite for such products.