INVESTMENT bank, Investcorp is predicting that Ghana’s 91-day Treasury bill could end the year with a yield of 27.50 per cent.
This could push lending rates up far above the 30 per cent average rate and make loans very expensive in Ghana. Presently, interest rate on the 91-day Treasury bill is 25.03 per cent.
Investcorp is also projecting a 20.20 per cent end-year depreciation of the local currency to the US Dollar. From January to April this year, the local currency declined in value by 22.63 per cent.
Investcorp also said in its ‘April 2015 Report’ that the high interest rate has compensated for the huge depreciation of the Cedi.
“Ghana’s long history with abnormal yield curves, where short-term interest rates are higher than relatively long-term interest rates, makes it more effective and easy to price debt instruments with the benchmark 91-day Treasury bill rate. Using this dynamic, we have observed that interest rates do compensate for currency risk at least over a 3-year cycle.”
It explained that “while concern about currency risk is real for Ghana, there is clear evidence of the yield on the benchmark 91-day Treasury bill having a sustained edge over the corresponding depreciation of the cedi across a 3-year cycle. Essentially, investors in Ghana’s domestic debt market could be compensated for currency risk with well-structured debt instruments over the medium-term.”
There is some level of efficiency of pricing at the short-end of the market by the Bank of Ghana. Investcorp said it sees this as a good opportunity for both the private and public sectors to structure innovative medium to long-term debt instruments.
“Our view is that portfolio investors, multinational companies, as well as domestic companies could benefit from these efficiency gains; and the market must open up to innovative debt structures that will facilitate these benefits, “ the report said.
Currently, the market is dominated by fixed term placements, mostly at the short-end of the curve but excitedly there is room for medium-term lending and borrowing which the investment bank said must be encouraged.
It expects the Bank of Ghana to remain committed to this efficient pricing of debt at the short-end of the market, and possibly extend it across the array; as it helps to discourage foreign currency holdings as an alternative asset. This it believes should support the observed trend, and lead to interest rate changes in line with inflation and currency depreciation.
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