- Investor demand for Treasury bills has weakened
- The Treasury struggled to meet its borrowing targets
- Domestic borrowing remains a crucial source of funds
Investor demand for Ghana’s Treasury bills has weakened significantly in recent months, driven by a combination of tight liquidity conditions and the central bank’s implementation of a new cash reserve ratio (CRR) regime.
The CRR hike, which mandated banks to hold a higher percentage of their deposits in reserves, has reduced the amount of funds available for investment in government securities.
As a result, the Treasury has struggled to meet its borrowing targets at weekly auctions.
Weak Demand and Rising Borrowing Costs
In the second half of the year, the Treasury has consistently recorded deficits in its auctions, with investors submitting bids below the targeted amounts.
This shortfall has forced the government to increase its borrowing costs to attract investors.
T-bill yields have remained relatively unchanged, reflecting the tight financing conditions. While the 91-day bill saw a slight increase, the 182-day and 364-day bills held steady.
Impact of the Tiered CRR Regime
The new CRR regime introduced a tiered structure, incentivizing banks to lend more by allowing them to hold less in reserves. However, the initial impact has been a reduction in funds available for government securities.
Despite the challenges, the government remains committed to meeting its financing needs.
With limited access to international markets, domestic borrowing remains a crucial source of funds.
Outlook for the Market
As the election year approaches and economic indicators remain weak, investor sentiment towards T-bills is likely to remain cautious.
The impact of the CRR hike on the banking sector and the broader economy will be closely monitored.
While the government has taken steps to address liquidity concerns and promote economic growth, the challenges facing the T-bill market are expected to persist in the near term.
