The interest rate landscape in Ghana has undergone a significant shift, with the highest decline in Africa since January 2023. With yields on the money market as high as 35% at the beginning of the year, the government was compelled to cut interest rates to reduce the cost of borrowing drastically. The reduction of interest rates by 15.1% marks the sharpest decline in Sub-Sahara Africa in 2023.
Despite the significant drop in interest rates, Ghana’s yields remain among the highest on the continent. One of the few countries in Africa with yields higher than Ghana is Egypt. Analysts, however, are optimistic that the $710 million in loans approved by parliament will likely slow down the rise in yields on the money market.
Furthermore, there has been a notable decline in yields on the 91-day and 182-day Treasury bills. The yield on the 91-day Treasury bill has dropped by 15.11% to 20.26%, while that of the 182-day T-bill has seen a sharp decline by 13.15% to 22.83%. Despite the decline, yields in Ghana remain high when compared to other countries in the region.
Last week’s T-bills auction, held on Friday, May 5, 2023, was oversubscribed, with the treasury raising ¢2.57 billion, exceeding the gross target by 40.01%. The government accepted a significant ¢2.56 billion from the bids submitted by investors, mainly the banks. Additionally, the majority of the bids, totaling ¢1.62 billion, came from the 91-day T-bills, and all the bids were consequently accepted.
The government’s decision to cut interest rates is in line with the country’s economic growth objectives, as high-interest rates can lead to decreased borrowing and a lack of investment, which can stifle economic growth. It is hoped that the reduction in interest rates will stimulate borrowing, boost private sector investment, and drive economic growth in the country.