By: Joe JACKSON
The Ministry of Finance—under the baton of Dr. Cassiel Ato Forson—is proudly waving the banner of “Fiscal Responsibility.”
Why? Because it has slashed the 181-day Treasury Bill rate from a lofty 28.68percent down to 16.73percent in just the first quarter of 2025.
That’s a pretty good story to tell when your public debt burden is on a steady diet of caffeine.
Meanwhile, in a dramatic twist, the Bank of Ghana, led by Dr. Johnson Asiamah, hiked its Monetary Policy Committee (MPC) rate from 27percent to 28percent on March 28, 2025. The central bank’s rationale?
Inflation has stubbornly parked itself above 22percent since October 2024, despite having rolled down from a ‘Afadjato’ peak of 54percent in December 2022. So, the BoG is doing its best to wage war on rising prices.
To the untrained eye, these two policy moves might seem like they’re playing in entirely different bands: “Policy Incoherence,” some would say.
But according to this author, it’s more like a creative jam session of “Harmonious Independence.” Picture a conductor waving the baton at a brassy 28percent tempo, while the band is serenading T-bills at a smoother 18.85percent—all with 22.4percent inflation free-styling in the background. Sure, it could be a cacophony, or it might just be the edgy, experimental jazz that carries us through a generational economic crisis.
Critics’ questions
- Why the big gap between the Monetary Policy Rate (28percent) and T-bill Rate (18.85percent)?
- Normally, if the central bank is hoisting interest rates to the clouds, you’d expect government borrowing (via T-bills) to follow suit. Yet here, T-bills are dancing to Buga (Lo Lo Lo). Is the government getting an easy pass on debt?
- What about the negative real returns on T-bills?
- With inflation at 22.4percent and T-bill yields at 18.85percent, investors are losing purchasing power. In a “coherent” market, lenders would demand yields at least above the inflation rate, pushing T-bill rates higher. Will they ditch T-bills and race into forex, potentially giving the cedi another beating?
- Does MPR vs. T-bill mismatch undercut Monetary Policy?
- If the government borrows below both inflation and the central bank’s rate, can the BoG’s tightening really curb inflation? If one of the biggest borrowers is floating under the radar at negative real rates, the central bank’s inflation-fighting bark might have less bite.
The ‘Harmonious Independence’ camp responds
- Monetary Autonomy
- The Bank of Ghana is, quite rightly, marching ahead with high interest rates to tame inflation and bolster currency stability.
- Fiscal Prudence
- By harnessing apparently strong demand at its T-bill auctions, the government can borrow more cheaply than inflation suggests. That helps shrink the public debt bill—no small feat when you’re trying to right the ship.
- Investor Vote of Confidence
- Investors might be willingly stomaching negative real yields because they still trust the government’s direction. Sure, they’re getting fewer sachets of pure water for their coin, but for them, the safe harbor of T-bills (plus optimism about a genuine policy “reset”) is worth the cost. Perhaps these folks believe this new, independent central bank and fiscally prudent government combo is the ticket to turning the economy around.
The bottom line
Ghana’s economy is fresh from a serious knockdown. Public debt’s still a grizzly bear, and every policy choice is a tightrope walk over a crocodile-infested river. “Harmonious Independence” may be a risky form of jazz, some notes might sound off to critics, but if everyone plays with skill and timing, the encore could be a showstopper. After all, sometimes the wildest improvisations lead to the sweetest symphonies.
>>>the writer is the CEO of Dalex Finance and a Fellow of the Institute of Chartered Economists Ghana
