BoG disagrees with analysts on T’Bills
The high interest rates at which Treasury Bills are auctioned in the country is a deliberate attempt by the Bank of Ghana (BoG) to entice people to invest in the short-dated instruments rather than converting their excess capital into foreign currencies, two market analysts have said.
The move was to help take the pressure off the cedi while helping raise funds to support government's short-term financial needs, the analysts, Mr Mahama Iddrisu, the Managing Director of EDC Stockbrokers Limited, and Nana Kofi Agyemang-Gyamfi of UMB Stockbrokers Limited, said in separate interviews.
BoG has, however, disagreed with that assertion, explaining that the development was rather a reflection of government’s quest for funds to meet revenue shortfalls.
Nana Agyemang-Gyamfi of UMB Stockbrokers Limited explained that the action, though is piling up government’s public debt, was aimed at redirecting investor attention from foreign-denominated instruments, which has been the bane of the depreciation of the local currency since January, into cedi-denominated instruments, which were then losing appeal in the light of dampened investor sentiments.
“If the rates on the 91-day bill and 182-day bill are 25 or 26 per cent, then people with excess funds to invest can never go wrong if they invest in them. As a result, what the central bank did was to allow the T'Bill rates to go up in a deliberate manner with the aim of helping to divert investor attention and in the process mop up excess liquidity, which could have been changed into foreign currencies,” he explained.
The observation on rising interest rates on T'Bills and the depreciating cedi by the two analysts comes in the wake of increasing investor appetite amid rising cost of the T’Bills – the 91 and 182-day bills – and the one and two year notes, which are auctioned by BoG on behalf of government.
The 91-day bill, which was quoted at 19.23 per cent on January 6, edged up to 25.71 per cent in October 8. The 182-day bill also rose from 19.18 per cent on January 6 to 26.41 per cent in October 8, data from the BoG indicated.
The trend was similar in the case of the one and two year notes, which closed 2013 on stable rates.
While the rate for the one-year note moved from 17 per cent in January 6 to 22.5 per cent in October 8, the two year note shot up to 23 per cent in October from the 16.5 per cent it was quoted on January 6.
As this happened, the value of the cedi to its foreign counterparts, particularly the US Dollar, the British Pound and the Euro, went down.
This called for firm action from the BoG to counter the depreciation, Nana Agyeman-Gyamfi, who does weekly analysis of the currency's performance, said.
“In those periods (when the currency was depreciating), it was obvious there were more cedis in the system looking for fewer dollars and the thing the central bank did was to be less concerned about the rate at which T’Bills were auctioned. The reason was that higher T’Bill rates meant that people would buy more of them rather than having to change their cedis into dollars, which was then becoming the norm,” he explained.
Asked if that was better than allowing investors to decide where to put their money, he said it appeared to have been the lesser devil among the two.
“You cannot look at one and leave the other. The two – the cedi depreciation and rising T’Bill rates – occupy government’s interest but it appeared the T’Bill rates were of lesser cost in the short-term compared to the depreciation,” he explained.
Mr Iddirsu on the other hand said the development by the central bank was one of three reasons that accounted for the increases in the rates amidst a decline in the value of the cedi.
“The first was for government to raise funds to fund long-term projects and the second was to meet its funding gap created by revenue shortfalls,” he said
BoG's explanation
The observation of the two analysts confirms natural economics theory, which has it that the central banks of depreciating currencies will normally adopt and apply measures that will make their currency appealing to investors; a theory the country's central bank said it shared in.
“Mostly, what central banks do in times like that is to make the currency attractive so that people will stop selling your currency and rather want to be holding it,” the Deputy Head of the Financial Stability Department of BoG, Dr Settor Amidiku, said in a separate interview.
“However, it was not so in this case; it was not any deliberate attempt by us to increase the rates for people to buy T’Bills, no," Dr Amidiku said, citing the government's increasing need for funds as the cause.
With government revenue falling short of target and expenditures rising above expectations, he said the pressure to source for extra funds to meet the gap creating was obvious hence the resort to the high T’Bill rates in other to entice people to lend to it.
"What government did was to look for more funds from the public and to be able to get the public to lend more to it, it kept increasing the rates. That is what pulled the rates up and not as they are saying. Yes, the rising T'Bill rates meant that people would patronise cedi-investments but it did not mean that we did it deliberately," Dr Amidiku added.
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