Declining interest rate and liquidity challenges key to govt missing T-Bill target for the first time in 2025
Story By: Rebecca Okine
Economic Analyst Emmanuel Boateng has identified the constant declining interest rate and liquidity challenges as key factors for government’s inability to meet its treasury bill target for the first time in 2025.
“If we want to understand why government did not meet its T-Bill target for the first time this year, one of the key reasons is the declining interest rate,” Mr. Boateng said. “Investors are compensated by the interest on their investments and once that interest is declining the T-Bill doesn’t become attractive to them as it used to.”
Since the beginning of this year, the Bank of Ghana’s treasury bills have seen a decline in interest rates, from about 28% to around 16 to 18% presently. The effects of this decline have been reflected for the first time with the latest auction results. For the last tender (1947), the government had set a target of 6.1 billion Ghana cedis, but only raised GH¢ 4.9 billion, according to the latest T-Bill auction report released by the Bank of Ghana on Friday, March 22, 2025. This represents an 18% undersubscription and marks the first time the government has missed its target in 2025. Also, out of the 4.9 billion auctioned, the government only accepted GH¢ 3.31 billion.
According to auction results from the Bank of Ghana, the government raised GH¢4.99 billion from the sale of short-term instruments but accepted only GH¢3.31 billion.
The 91-day bill accounted for the majority of the bids, with GH¢3.63 billion tendered, representing 72.7% of total bids. However, the government accepted GH¢2.33 billion.
Speaking on the Market Trends segment on Business Breakfast on ZED 101.9 FM, Emmanuel Boateng pointed out at the declining interest rate and liquidity challenges as key factors to government missing treasury bill target.
Mr. Boateng also noted that aside from the declining interest rates, factors such as reduced disposable income and liquidity constraints within financial institutions also played a role in the shortfall.
“Another issue is disposable income or money supply or the constraints on liquidity within the financial sector,” Mr. Boateng explained.
This means that the overall financial environment is becoming more challenging for both investors and institutions. When disposable income decreases, individuals and businesses have less money to save or invest, which directly impacts the demand for government securities like treasury bills. Similarly, liquidity constraints within financial institutions indicate that banks and other financial entities are facing difficulties in mobilizing enough capital to participate in such auctions or lend to the public.
Mr. Boateng further explained that with less money circulating in the economy, investors become more cautious about where they allocate their funds, leading to lower demand for treasury bills, which in turn contributes to the shortfall in the government’s target. This combination of economic factors is causing a shift in investor behavior, where risk-averse strategies are becoming more prevalent, and fewer investors are willing to purchase government securities, thereby affecting the government’s ability to meet its financial goals.
