In March this year I wrote about how the government forced treasury bill rates down to reduce the amount they were spending on interest payments. This gave the government a few months of relief before the rates started creeping back up.

The reality is that government and the financial sector are in a situation of interdependence. The treasury bill is one of two safe, liquid investments that deposit-holding institutions can invest in. The other is the Bank of Ghana bills. This means that government can exert some downward pressure on the rates but financial institutions can also exert upward pressure because the government has no other domestic borrowing source.

Figure 1.1 shows the movement of inflation and the 91-day treasury bill rate. Historically, Ghana’s treasury bill rates are above inflation as investors expect a return higher than inflation. However, the exceptionally high inflation rates that the nation witnessed from the start of 2022 meant that treasury bills could not be set above inflation without pushing the government’s interest payment bill to absurd levels. Investors therefore had to make do with negative returns once inflation was accounted for. And we see this with the t-bill line falling under the inflation line. The divergence got wider and wider until August and September when we have started seeing the start of some convergence as headline inflation fell to 38.1% in September and 91-day treasury bill rates rose to 29%.

I will be following this development closely as Ghanaian investors are seeking some cedi investments that can protect them from one of the worst cost of living crisis in the nation’s history.