By Felix Larry ESSILFIE (Dr)
Ghana’s short-term interest rates have experienced a historic decline in the early weeks of President John Mahama’s administration, marking a significant shift in the country’s financial landscape.
Within the first 50 days of his leadership, the 91-day Treasury bill (T-bill) rate dropped from approximately 28.34% to 20.79%, while the 182-day and 364-day rates fell from 28.96% to 22.98% and from 30.17% to 22.69%, respectively.
This sharp and unprecedented reduction, totaling between 600 to 760 basis points across different maturities, has been described by the Ministry of Finance as a historic event. The decline has far-reaching macroeconomic and fiscal implications, particularly as it coincides with Ghana’s economic recovery efforts under the IMF program.
The speed of this adjustment, compressing a level of rate moderation that would typically unfold over several quarters into mere weeks, underscores both the magnitude of the preceding financial stress and the credibility boost delivered by the new administration. This rapid realignment of interest rates raises important questions about its sustainability, the underlying drivers, and the broader impact on Ghana’s financial stability, inflation expectations, and fiscal health.
The sharp decline in yields has significantly altered market sentiment, injecting a renewed sense of optimism into Ghana’s money markets. Investors have responded positively to the rate drop, viewing it as a strong signal of fiscal responsibility and economic stability under the new government. Market auctions have been characterized by substantial oversubscriptions, with a recent sale attracting bids amounting to GH¢20.5 billion—140% above the targeted issuance—while the government accepted only GH¢9.6 billion.
This surge in demand suggests that investor confidence in Ghana’s macroeconomic direction has strengthened considerably following a period of uncertainty. The robust appetite for T-bills, despite the declining yields, suggests that investors are willing to accept lower returns in exchange for the perceived improvement in Ghana’s fiscal outlook and political stability.
This shift is notable given the turbulence of 2022, when the 91-day T-bill rate surged beyond 35% amidst extreme inflationary pressures and debt distress. The ability of the government to refinance existing obligations smoothly and at significantly lower rates without triggering market volatility suggests a marked improvement in the country’s financial conditions. While yields have fluctuated significantly over the past year, the current sustained decline suggests that Ghana’s economic normalization process is gaining traction.
Liquidity conditions in the financial sector have remained stable, reinforcing the argument that the rate decline has not disrupted market equilibrium. The government’s debt refinancing operations over the past eight weeks have been largely successful, with GH¢59.5 billion raised to settle maturing obligations while GH¢30 billion in bids were rejected to prevent an unnecessary rise in borrowing costs. This careful rationing of debt issuance signals a shift in fiscal management, as the government seeks to optimize borrowing costs while maintaining investor confidence.
The interbank rate, which had hovered above 30% in 2023, has adjusted downward in response to the lower T-bill yields, facilitating a broader easing of short-term borrowing costs across the financial system. This reduction in interest rates has improved liquidity for banks and reduced financing stress within the banking sector, reinforcing stability in the money market.
Notably, investor confidence has been buoyed by the controlled nature of the rate decline. Unlike previous instances where Ghana’s interest rates fell due to panic-driven interventions or economic crises, the current transition appears to be a deliberate and measured process, strengthening market expectations of sustained stability.
The drivers of this sharp yield decline can be traced to a combination of improving macroeconomic fundamentals and deliberate government policy interventions. On the market-driven side, Ghana’s economic outlook has improved under the IMF-supported recovery framework, leading to greater demand for government securities.
The ongoing debt restructuring process has left domestic investors with limited alternative investment opportunities, making T-bills an attractive option despite the lower yields. However, policy actions have also played a key role in engineering the rate decline. The Ministry of Finance has strategically managed debt issuance by rejecting expensive bids and limiting supply at auctions, effectively guiding yields downward.
This form of yield curve management has been evident in successive auctions, where increasing portions of bids have been turned away to prevent an artificial elevation of rates. Unlike in previous periods where monetary policy was the primary driver of rate movements, this episode has been largely dictated by fiscal consolidation measures, as the Bank of Ghana has maintained its policy rate at 27%, indicating that the decline in T-bill yields is not a result of broad monetary easing.
The implications for inflation expectations are complex. A sharp reduction in short-term interest rates can signal improved confidence in disinflation, as investors accepting lower yields suggest an expectation of continued price moderation.
Inflation in Ghana has been on a downward trajectory, falling from a peak of 54% in December 2022 to approximately 23.5% in January 2025. The decline in T-bill rates aligns with market expectations that inflation will continue to recede, reinforcing the perception that Ghana is returning to macroeconomic stability. However, lower yields can also lead to excess liquidity in the financial system if not properly managed.
The rejection of GH¢30 billion in bids means that a large volume of liquidity remains within the banking sector, potentially fueling credit expansion and speculative asset purchases. While lower rates are beneficial for businesses and consumers, they also risk reigniting inflation if credit growth outpaces real economic growth.
The Bank of Ghana has maintained a cautious stance, holding its policy rate steady while emphasizing that inflation remains elevated. This signals that monetary authorities are keen to prevent premature policy loosening, ensuring that the disinflation process remains on track.
Fiscal sustainability has been a key beneficiary of the declining T-bill rates, as lower yields translate into reduced government borrowing costs. Given Ghana’s heavy reliance on short-term debt to finance its budget, the ability to refinance maturing obligations at rates nearly 700 basis points lower represents a substantial fiscal relief. Interest payments, which had consumed nearly 45% of government revenue in 2022, are expected to decline significantly, creating additional fiscal space.
The government’s approach of rejecting excessive borrowing while refinancing at lower rates is a prudent strategy that reinforces its commitment to fiscal consolidation. If sustained, this shift could improve Ghana’s debt sustainability outlook, particularly if combined with strong revenue mobilization efforts.
The government’s strategy of limiting net domestic financing suggests that it is prioritizing fiscal discipline over expansionary borrowing, further strengthening market confidence. However, it remains crucial that the fiscal space created is used effectively—either to accelerate deficit reduction or to fund high-impact investment—rather than to justify increased recurrent expenditure.
The decline in T-bill rates is also poised to unlock greater access to private sector credit, as lower government borrowing costs reduce the crowding-out effect on commercial lending. With risk-free returns on government securities declining, banks face greater incentives to reallocate funds towards business lending.
The Ghana Reference Rate, which influences commercial loan pricing, has already trended downward, and continued rate reductions could further lower borrowing costs for businesses. This shift is critical for Ghana’s economic recovery, as improved credit access can spur investment and job creation in key sectors such as manufacturing, agribusiness, and technology. Additionally, institutional investors who previously allocated capital to high-yield T-bills may now seek alternative opportunities in corporate bonds, infrastructure financing, or equity markets. If sustained, this trend could enhance financial market development and support long-term economic diversification.
Foreign exchange stability remains a critical consideration in assessing the long-term sustainability of lower domestic yields. Historically, sharp interest rate declines have raised concerns about capital flight and exchange rate pressures. However, Ghana’s foreign exchange market has remained relatively stable, with the cedi experiencing only a mild depreciation of approximately 4% since the beginning of the year.
This stability can be attributed to improved external balances, increased foreign exchange reserves, and ongoing support from the IMF. While the narrowing interest rate differential with global markets could lead to some portfolio rebalancing by investors, the managed nature of Ghana’s capital account and the predominance of local holders in the T-bill market mitigate the risk of large-scale capital outflows.
To sustain the benefits of the declining T-bill rates, Ghana must maintain fiscal discipline, ensuring that interest savings are used to consolidate debt rather than fuel new spending. The Bank of Ghana must remain vigilant against potential inflationary pressures arising from excess liquidity, using open market operations where necessary. Expanding the maturity structure of domestic debt will also be crucial in reducing refinancing risks. Finally, efforts to enhance private sector credit access and strengthen financial sector resilience will be vital in maximizing the economic gains from lower borrowing costs.
Ghana’s recent decline in T-bill rates marks a critical moment in its economic adjustment, signaling improved investor confidence and fiscal stabilization. However, the sustainability of these gains depends on continued sound policy execution. By reinforcing fiscal responsibility, maintaining prudent monetary policies, and fostering private sector-led growth, Ghana can transform this episode of lower interest rates into a foundation for long-term economic stability and resilience.
The writer is the Executive Director, IDER
