Treasury bill (T-bill) rates crashed to an eight-year low last Friday, renewing the hope of businesses that the era of low cost credit for expansion was nearer than initially expected.

Yields on the 91-Day and the 182-Day benchmark rates fell to 19.999 per cent and 22.848 per cent respectively on March 10, as the domestic debt exchange programme (DDEP) started to bear fruits.

Executives of business associations told Graphic Business on March 13 that the falling rates was a source of hope at a time of despair, but noted that much work must be done to translate it into a reduced cost of lending for firms and organisations.

The President of the Association of Ghana Industries (AGI), Dr Humphrey Ayim-Darke, and his counterpart at the Ghana Union of Traders Association (GUTA), Joseph Obeng, said the slump in the rates was heartwarming, as it was the most credible signal to the dawn of a low interest rate regime.

They said they expected lending rates, which were currently around 32 per cent, to fall to around 15 per cent as soon as practicable, in line with the expectation on T-bill rates. 

Misalignment

But while T-bill rates have fallen to below 20 per cent, the Bank of Ghana (BoG) policy rate and the Ghana Reference Rate remains high at 28 per cent and 32.91 per cent respectively.

Inflation is also at 53.5 per cent, raising questions about the possibility of lending rates falling in line with current T-bill rates.

Dr Ayim-Darke and Mr Obeng admitted that the high inflation and the policy rates were a challenge. but said the market was being corrected in the wake of the DDEP.

As T-bill rates crash, the AGI President said BoG must pull the brakes on its financing of the government.

“The behaviour of BoG, with regard to quantitative easing, must stop and the downstream petroleum sector must be controlled.

Once you start tackling those issues, definitely, the inflation rate will drop.

“So, something must take the lead and we are happy that T-bills are doing that,” he said. 

Implications

On the impact of low lending rates, Mr Ayim-Darke said it would be a trigger to increased productivity.

“Once this is attained, it restores confidence and then lending will be meaningful to productivity and so it is crucial,” he said.

Mr Obeng of the GUTA said it would be good for businesses.

“For me, BoG should, as a matter of urgency, reduce its policy rate for commercial rates to fall,” he said, ahead of the central bank’s next policy rate decision on March 27.

“We need low lending rates as soon as practicable because cost of borrowing is excessively high and it does not help with manufacturing and trading. 

“It makes us uncompetitive and irrelevant in the scheme of affairs in the globe,” the GUTA President said.

Rejection

Having been on an upward trajectory since last year, the rates peaked around 36 per cent in February before falling to 24 per cent on March 7 and 19 per cent at the last auction.

The decline came after the Minister of Finance, Ken Ofori-Atta, expressed concern about the dissonance in the treasury yield curve, where rates for short-dated securities were trading higher than those of long-dated instruments that were recently restructured.

Following from that, the government rejected bids for the short-dated instruments on March 3, insisting that the offer rates of above 35 per cent were not conducive for an environment that was ripe for yields below 20 per cent.

It then re-tendered that week’s auction on March 7, during which it received bids in excess of GH¢6.151 billion, below 25 per cent.

Low rates regime

A member of the auction team at the Ministry of Finance told the paper that the decision to reject the offers at 35 per cent formed part of efforts to reset interest rates.

It said after a successful DDEP that saw a reduction in rates on long-dated instruments, it was time for yields on short-dated securities to also fall for the yield curve to be corrected.

It said the action would also reduce the cost of borrowing for the private sector as T-bill rates were benchmarked by lenders. 

“The banks are hesitant in lending because of the risks. What that means is that the short-end of the market is the only option available.

“Now, if we do not take their offers (at higher rates), they will have nowhere to go than to reduce their rates or lend to the private sector. Either ways, the economy benefits,” the source said.

Source: graphiconline.com