The yields on Ghana’s 91-day, 182-day, and 364-day Treasury Bills are expected to gradually decrease in line with the Central Bank’s easing policy rate. This adjustment comes as a response to the country’s falling headline inflation rate, which has created a conducive environment for rate reduction.
The short-term debt instruments issued by the Government are heavily impacted by the adjustments made to the Bank of Ghana’s bi-monthly policy rates. Recently, the Bank of Ghana announced a slight increase in its prime rate, setting it at 30%, triggered by a marginal uptick in headline inflation.
The Central Bank is gearing up to initiate its monetary policy easing cycle in the fourth quarter of 2023. The projection indicates that the policy rate will be reduced to 28% by the end of 2023, followed by a further decline to 22% by the end of 2024. These adjustments are based on the country’s headline inflation rate returning to the path of disinflation.
As the policy rate significantly influences the yields and interest rates of Government securities, particularly Treasury Bills, it is expected that the yields on Treasury Bills will gradually taper off over the next 18 months, leading up to the first quarter of 2025.
The projected yields for the 91-day, 182-day, and 364-day Treasury Bills by the end of the first quarter of 2025 are approximately 15%, 17%, and 20%, respectively. These projections are in line with the Central Bank’s efforts to strike a balance between supporting the economy and managing inflationary pressures.
Interest rates/yields on the 91 day, 182 day and 364 day T-Bills as of August 7, 2023 were 25.5%, 27.2% and 30.4% respectively.
Meanwhile, from now to first quarter of 2025, investors that are income-oriented with short term income investment objectives are expected to continue to benefit from the high yields on Treasury Bills.
Currently, the high interest rates or yields offered by Government on Treasury Bills, is to make them attractive enough for investors to want to tie up or put their monies into the short term debt instruments which now serves as the Government’s sole major source of financing aside tax revenues and grants.
Additionally, the high interest rates or yields offered on T-Bills are to help Government narrow the negative returns gap on investments in treasury bills given the prevailing high inflation rate. However, within the second quarter of 2025 when inflation has tapered back to the Central Bank’s medium term target band, returns on investments in Treasury Bills is expected to turn positive.
Inflation per projections by the Bank of Ghana and the World Bank are expected to taper (reduce) to the Central Bank’s medium term target of 8+-10 in the second quarter of 2025.
The return to the Central Bank’s medium term target band is due to the anticipation that headline inflation will resume its disinflationary path.
Inflation which currently stands at 42.5% (at end-June 2023) is projected by Government to fall to 31.3% by the end of this year – 2023. This is however, still some 21.3 percentage points (21.3%) above the upper band of the BoG’s medium term target.
In 2024, inflation is projected by the IMF to average 22.2% but end the year at 15%; average 11.5% but end 2025 at 8%.
A myriad of factors are expected to keep inflation rate elevated till Q2 2025 when inflation is projected to taper back into the medium target band.
Factors anticipated to keep inflation elevated include high food inflation driven by high fertilizer prices and inadequate local food production necessitating food imports, increased port tariffs and taxes, scheduled periodic upward review of utility tariffs which is a requirement for the implementation of the IMF programme and fuel price increment.
In the scenario where there is a delay of the disbursement of the $350m fifth tranche in May 2025 under the IMF programme as a result of Government failing to meet set targets for the $350m disbursement due to overspending during the 2024 elections – which is usually the case in election years – this is expected to lead to some level of depreciation in the cedi, adding to the inflationary pressures and contributing to an uptick in the country’s inflation rate.
The final tranche disbursement of $400m under the IMF programme is scheduled to be in May 2026.