BoG monetary policy actions, others contributing to under-subscription of weekly T-Bills sale

The recent monetary policy actions by the Bank of Ghana and the lower interest rates in relation to inflation rate is the major cause of government inability to meet its Treasury bills sale target.

Government has been struggling to fully subscribe sale of its short-term securities to finance the budget, despite an increase in interest rates to entice investors.

Interest rates of the 91-day, 182-day and 364-day Treasury bills are presently going for 16.78%, 17.42% and 19.67% respectively.

Speaking to Joy Business, Economic Analyst, Courage Martey, told Joy Business liquidity keeps tightening on the interbank market.

BoG monetary policy actions, others contributing to under-subscription of weekly T-Bills sale

“These under subscriptions can mainly be explained from two levels. The first and primary reason being the cedi liquidity tightening as a result of the recent monetary policy decisions to not just increase the policy rate, but also increase the cash reserve ratio to 12%, from 8% and other measures.”

“Since then, we have seen a significant reduction or tightening of liquidity on the interbank market and because of that banks will not have so much liquidity to deploy into other assets like holding of treasury bills. So the significant tightening of liquidity means that banks will not have excess liquidity available to deploy across treasury securities; and that’s one major reason why government is struggling to meet its target at the weekly T-bills auctioning”, he explained.

Mr. Martey further pointed out that though interest rates keep rising, the real return on T-bills is negative.

“The second reason is interest rate is rising, but they are still way below the level of inflation, especially for treasury bills. So the real return on treasury bills is still negative and so if you have a tight liquidity situation you cannot even deploy what you have to earn negative return.”

“So a combination of interest rates being below inflation and liquidity itself being very tight means that government is recording squeeze or under subscription at the weekly options [T-bills sale]”, he added.

source: Joy Business

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