Don’t celebrate yet, declined T-bill yields artificial – IPPA to Finance Minister

The Institute of Public Policy and Accountability (IPPA) has advised Finance Minister Dr. Cassiel Ato Forson against celebrating the recent drop in treasury bills. They believe the decline in interest rates is artificial.

In a statement, IPPA noted that lower treasury bill yields could impact the cedi. Investors may turn to high-yielding assets like the dollar.

The institute cautioned the finance minister not to rush into celebration. They emphasized that Ghana's main fiscal issue is inadequate revenue collection and excessive borrowing for consumption. This situation could put pressure on the cedi due to increased demand for US dollars, undermining inflation gains.

Kwamina Asomaning, Managing Director of Stanbic Bank, supports this view. He acknowledged that while lower T-bill rates are positive, they have created pressure on the cedi. Investors see the dollar as a safer investment option.

As a public policy organization, IPPA stressed the need for sustained fiscal discipline. They want lower borrowing costs to lead to economic growth rather than excessive government spending or artificially low yields.

IPPA also highlighted foreign exchange stability as crucial for sustainable domestic yields. They expressed concern that the local currency lacks stability compared to 2018 and 2019 levels. Historically, sharp declines in interest rates raise fears of capital flight and exchange rate pressures.

The institute urged the finance minister to collaborate with the Bank of Ghana. They recommended gradually improving the interest rate environment while considering potential risks.

IPPA wants T-bill rate reductions to align with significant drops in lending rates. This alignment would ease business costs and promote revenue mobilization through business-friendly fiscal policies.

Since January 2025, T-bill yields have decreased by over 10%, but lending rates remain high. Recently, demand for short-term instruments has declined due to lower yields as investors seek better returns elsewhere.