Interest rates on Treasury bills have dropped to their lowest levels in three years, even as the government significantly reduced the volume of rejected bids. Results from Tender 1946, held on March 14, 2025, show that short-term borrowing costs have continued their downward slide, with investors adjusting to the government’s aggressive stance on lower yields.

The latest auction saw GHC 9.26 billion in total bids across the 91-day, 182-day, and 364-day bills, of which the government accepted GHC 8.77 billion, rejecting just GHC 494 million. This marks a sharp drop in rejected bids, compared to the GHC 4.08 billion turned down in Tender 1945 (March 7, 2025) and the GHC 10.8 billion rejected in Tender 1944 (February 28, 2025). The reduction in rejections suggests that investors are now pricing their bids more in line with the government’s expectations, leading to fewer costly bids being turned away​.

For the 91-day bill, which received GHC 5.2 billion in bids, the interest rate fell to 15.8624%, down from 16.9287% in the previous auction. The 182-day bill’s rate declined from 18.9653% to 16.9287%, while the 364-day bill fell from 19.9833% to 18.9653%​.

The continued decline in rates comes even as inflation remains elevated, easing only slightly from 23.5% in January to 23.1% in February 2025. Although inflation is still well above Treasury bill yields, the government’s consistent rejection of high bids in previous auctions has successfully pushed rates downward, forcing investors to adjust their expectations.

A review of Treasury bill auctions over the past few weeks highlights the dual trend of falling rates and declining rejected bids. In Tender 1944 (Feb 28, 2025), the government rejected GHC 10.8 billion out of GHC 18.25 billion in bids, but this amount dropped to GHC 4.08 billion in Tender 1945 (March 7, 2025) and further down to GHC 494 million in Tender 1946 (March 14, 2025).

This steep decline in rejections could either mean investors have adjusted their pricing to align with the government’s borrowing strategy or have opted for alternative investment options which could have unintended consequences.

Renowned economist Dr. John Kwakye has cautioned that a sharp drop in rates must be carefully managed to avoid destabilizing the foreign exchange market. He noted that if rates fall too quickly, investors may shift their funds to alternative investments with better returns, potentially weakening the cedi.

T-Bill yield of 17% as reported when inflation is 23%, seems artificially low. It is important that T-Bill rates are aligned with other money market rates to avoid potential flight to dollars.

— J. K. Kwakye (@JohnKwabenaKwa1) March 17, 2025

The government has set a lower target of GHC 6.14 billion for the next auction on March 21, 2025, signaling that it may be looking to further test investor appetite for declining rates.