Declining T-bill yields artificial; do not correspond with BoG’s monetary policy rate, lending rates

The rapid decline in T-bill rates does not match the Bank of Ghana’s monetary policy rate. Current average lending rates are around 30% as of December 2025. Therefore, we believe the finance minister's celebration of lower T-bill rates is premature.

This situation does not indicate proactive fiscal management by the government. If anything, they benefit from policies of the previous administration. The International Monetary Fund reported on December 2, 2024, that Ghana's performance under its program has been satisfactory.

The previous regime kept T-bill yields aligned with inflation to discourage foreign investments. This was aimed at stabilizing the exchange rate. Currently, T-bill yields are much lower than inflation rates, making them unattractive for investors.

Although demand for T-bills remains strong, it is starting to decline. Subscription amounts fell from GHS20.499 billion on February 21, 2025, to GHS9.264 billion on March 14, 2025. This indicates a potential decrease in investor interest.

Average lending rates above 30% show high credit costs in Ghana. The drop in T-bill rates does not reflect current economic conditions. Economic stability today differs significantly from that in 2018 when lending rates were about 22%.

The gap between T-bill and lending rates is around 14%. No rational investor will accept a return of 15% while borrowing at 30%. Investors may prefer US dollars or foreign assets instead.

This shift could increase demand for foreign currency and pressure the forex market. Such pressures may force the Bank of Ghana to intervene and deplete reserves currently at about US$8.4 billion as of December 2024.

The Institute of Public Policy and Accountability advises caution against celebrating these changes too quickly. Ghana's main fiscal issues include revenue collection and excessive borrowing for consumption.

We warn against increased pressure on the cedi due to rising demand for US dollars. This could undermine progress made in reducing inflation levels.

Kwamina Asomaning from Stanbic Bank supports encouraging lower T-bill rates but notes it creates pressure on the cedi as investors seek safer returns in USD.

As a public policy organization, we stress that sustained fiscal discipline is essential for economic growth without excessive spending or artificial yield reductions. Foreign exchange stability is also crucial for maintaining lower domestic yields.

We do not see this stability yet; local currency values remain volatile compared to past years like 2018 and 2019. Historically, sharp declines in interest rates raise concerns about capital flight and exchange rate pressures.

In conclusion, we advise the finance minister against rushing to celebrate falling T-bill yields. He should collaborate with monetary authorities to improve interest rate conditions gradually while considering potential risks involved.

We want reductions in T-bill rates to align with decreases in lending rates to ease business costs significantly. Fiscal policies should focus on revenue mobilization while being business-friendly.

To maximize benefits from declining T-bill rates, Ghana must prioritize fiscal consolidation and use savings wisely rather than increasing expenditures unnecessarily.

With ongoing high inflation levels, a gradual decline would benefit both consumers and businesses alike within Ghana's economy overall.

We are closely monitoring government interventions like Goldbod aimed at strengthening exchange rate stability through gold reserves management.