Government still struggling to meet T-Bills sales target despite increasing interest rates

Government is still struggling to meet its weekly Treasury bills target to finance the 2022 Budget, despite rising interest rates.

According to the latest auctioning by the Bank of Ghana, government secured GH¢982.17 million from the sale of the short term securities on 22nd April, 2022.

This was an under-subscription of 49.1%

The target for the 91-day, 182-day and 364-day T-bills was ¢1.932 billion.

Interest rates for the 91-day, 182-day and 364-day were 16.78%, 17.42% and 19.67% respectively. There were higher than the previous week (April 15th, 2022) sale.

Despite the rising interest rates, investors largely banks are a bit hesitant in subscribing significant amount of the T-Bills.

Senior Economic Analyst at Databank Research, Courage Martey, told Joy Business liquidity keeps tightening on the interbank market because of the policy actions by the Bank of Ghana and the Finance Ministry.

“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.