The decline in the Bank of Ghana’s key monetary rate appears to have boosted demand for short-term securities, particularly treasury bills and bonds.
This could subsequently trigger a further drop in lending rates, a situation that will force the banks that are largely the largest investors in Treasuries to shift their investments into short-term securities.
The Treasury bill sale was oversubscribed by around 14% to 1.34 billion cedis during the recent auction, despite mixed developments in the past eight weeks. Senior economic analyst at Databank Research, Courage Martey told Joy Business that lower yields on treasury bills will help the government to refinance the maturing debt instrument cheaply.
“Well yes, it is true that liquidity has improved remarkably in the interbank market over the past two weeks and this has also propelled demand for Ghanaian government securities across the spectrum of maturities, from Treasuries to obligations. And the increase in demand is one of the main reasons that yields have actually gone down over the past two weeks. The real driver of this demand and liquidity, for that matter, has been the events that have taken place in particular on the monetary policy side over the past two weeks. “” First of all, you remember the unexpected drop in the monetary policy rate of 100 basis points which triggered a new expectation of lower interest rates for short-term securities … short-term securities “, he underlined.
Mr. Martey says he expects lower inflation coupled with the lower policy rate to lower the lending rate in the future.
“We expect this request [Treasury bills] will continue to drive down yields in the weeks to come and this drop in yields also means that the government of Ghana can then refinance its maturing papers at a lower cost than the amount it issued for maturing papers. currently due. “
“So overall, it appears that the Bank of Ghana’s monetary policy action two weeks ago, followed by lower inflation the following week, boosted demand in the market and lowered returns… maybe aggressively over the past couple of weeks.
The BoG cuts its key rate to 13.5%
The Bank of Ghana’s Monetary Policy Committee cut its benchmark rate to commercial banks by 100 basis points to 13.50%, the first time since November 2019.
According to the Governor of the Bank of Ghana, Dr Ernest Addison, this decision was influenced by a resumption of economic activities and a recovery to pre-pandemic levels.
This move is expected to impact the cost of credit over the next two months and spur economic growth.