Interest rates continue to rise; cost of borrowing to increase

Interest rates continue to surge on the domestic market, as latest Bank of Ghana auctioning of Treasury bills indicate that both the 91-day and 182-day Treasury bills went up by more than 0.10%.

This was necessary to entice investors to buy the short term securities, but will increase the cost of credit.

The rising interest rates is due to the risks in the economy such as the rising debt, low revenue and high expenditure.

The auctioning came a day in which government failed to meet its target for the 5-year bond opened to both resident and non-resident investors.

Analysts believe government had no choice but to increase the yield of the short term instruments in order to meet its target.

According to the auctioning by the Bank of Ghana, the interest rate of the 91-day and 182-day T-bills went up by 0.11% and 0.06% to 13.25% and 13.55% respectively.

However, government was able to meet its target, securing ¢1.478 billion, about 5% oversubscription.

It however accepted all the bids tendered in by the investors, largely banks.

Presently, domestic interest payments accounts for about 78% of total interest rate payments.

With the prevailing upside risks to domestic interest rates, aggressive control of government spending is very important since the era of cheap money is over.