Treasury Bill Yield Curve Signals Inflation Uncertainty – Economic Analyst
By: Solomon Nartey Tetteh
Economic Analyst Emmanuel Boateng has indicated that Ghana’s current treasury bill yield curve reflects growing investor caution about the country’s inflation outlook and future interest rate direction.
Speaking on Business Breakfast on Zed 101.9FM, Boateng noted that the present structure of Treasury bill rates shows a normal upward-sloping yield curve, with the 91-day bill at 6.45 per cent and the 364-day bill at 10.21 percent.
According to him, the spread between the short-term and longer-term instruments suggests that investors anticipate inflation could be higher in the coming year than it is today.
“When you look at the spread between the two, it suggests that investors expect inflation to be higher in a year than it is now,” he explained.
Boateng argued that while inflation has declined significantly this year, the improvement must be viewed within context. He suggested that part of the slowdown could be attributed to base effects, meaning inflation is being measured against previously elevated levels.
“One of the reasons inflation may even be low this year is because of the figures it has been compared to, adding that sustaining further declines next year could prove more challenging,” he said.
He stressed that maintaining or lowering inflation beyond current levels would require outperforming this year’s gains, a task he believes may not be straightforward.
He pointed out that the Government of Ghana’s medium-term inflation target band stands between 6 and 10 percent, noting that the current rate is already below that threshold.
He said Investors are well aware of these dynamics and are therefore demanding higher yields for longer-term instruments as compensation for anticipated risks.
“They are demanding a significant premium for locking up their money for longer periods because they believe interest rates are likely to go up in the future,” he said.
Boateng further indicated that interest rates may not continue their downward trend indefinitely, suggesting that an inflection point could emerge.
“I don’t think the interest rate will keep coming down and down. At a certain point, we could see a reversal,” he added.
