Ghana Borrowing Costs to Fall 4th Week on Record Bond Sale

Ghana’s three-month borrowing costs, which fell to five-month lows last week, are poised to decline for a fourth auction today after the central bank sold the most domestic bonds on record, reducing its funding needs.

Yields on three-month Treasury bills slid 69 basis points to 22.33 percent, still the highest in Africa, on Nov. 2, a week after the Accra-based Bank of Ghana issued 1.46 billion cedis ($778 million) of three-year bonds in its biggest local sale. The yield compares with 13.3 percent for Nigeria, West Africa’s largest economy, and 20.28 percent for Sierra Leone, which is rebuilding an economy devastated by civil war.

Ghana’s central bank boosted rates on 91-day bills, used by local lenders as a benchmark for setting loan rates, to stem a decline in the cedi by making local assets more attractive than dollar-denominated investments. A weaker cedi drives up the cost of goods in Ghana’s import-dependent, 67.4 billion-cedi economy. The currency, which depreciated 15 percent against the dollar in the first half of the year, has since gained 3.4 percent.

“I don’t expect anybody to bid higher than 21.5 percent at this week’s auction,” Vida Antwi, a bond trader at Accra-based Databank Financial Services Ltd., said by phone Nov. 6. “The Bank of Ghana raised a lot of money in the last three-year bond issue specifically so that it can limit Treasury-bill sales.”

The cedi advanced less than 0.1 percent to 1.8769 a dollar as of 9:13 a.m. in Accra.


Ghana, West Africa’s second-biggest economy, can pare back the sale of 91-day bills because it has raised enough money, Finance and Economic Planning Minister Kwabena Duffuor said in an interview in Accra, the capital, on Nov. 7. He declined to be more specific on the nation’s financing needs. The finance ministry on Oct. 30 predicted a budget deficit of 1.2 percent of gross domestic product for the first quarter of next year.

“The three-year bond funds were raised specifically for restructuring of government debt,” said Duffuor. “Shorter-term instruments must attract lower coupon rates.”

Ghana’s 182-day notes yielded 22.64 percent at the Nov. 2 auction, the one-year bond 22.8 percent and the two-year debt 23 percent, the central bank said. The three-year bond traded at a yield of 19.5 percent as of opening of trading in Accra today and five-year debt at 19.75 percent, according to data from the local unit of Standard Chartered Plc.

Yield Curve

The nation’s yield curve inverted when the central bank increased 91-day yields to arrest the cedi’s fall. The economy, boosted by the beginning of oil production in December 2010, will expand 8.2 percent this year from 14.4 percent in 2011, according to the International Monetary Fund. The central bank holds auctions every Friday, offering 91-day, 182-day, one-year and two-year notes.

“The gap between the bank’s policy interest rate and the 91-day treasury bill rate means there’s room to reduce the 91-day yields,” Duffuor said. The Bank of Ghana kept its benchmark interest rate unchanged at 15 percent on Sept. 12 after three increases this year totaling 2.5 percentage points to support the cedi. Inflation slowed to 9.4 percent in September from 9.5 percent a month earlier.

“It’s a bit too early for the central bank to start to allow treasury bill yields to fall,” Derrick Mensah, research analyst at SIC Financial Services Ltd. in Accra, said by phone Nov. 7. “Though inflation fell in September, there is still spending pressure in the economy, especially from political parties moving to campaign and fulfil last campaign promises.”


Ghana will hold presidential and parliamentary elections on Dec. 7. The central bank will probably keep interest rates unchanged at a Nov. 14 meeting, Mensah said.

The Bank of Ghana sold 124.3 million cedis of the 91-day bills on Nov. 2, less than half the 294.7 million cedis sought by investors, according to auction results on bank’s website.

“The objective of the three-year bond sale was to repay maturing debt at the short-end of the market,” Kofi Pianim, a bond trader at the Ghanaian unit of Standard Bank Group Ltd., said by phone on Nov 7. Standard Bank expects yields on the 91-day bill to fall to 20.5 percent by the end of the year, he said.

To contact reporter on this story: Moses Mozart Dzawu in Accra at +233-302-258-797 or

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