Declining T-Bill rates pose threat to foreign exchange stability and cedi depreciation – Professor Peter Quartey

He said the decline had a potential impact on foreign exchange stability and the depreciation of the Ghanaian cedi.

He expressed these concerns in an exclusive interview with the Ghana News Agency.

Professor Quartey cautioned that the current trend is unsustainable and could exacerbate the country’s economic challenges if not addressed promptly.

The warning comes when the Central Bank prepares to announce the new interest rate at the next Monetary Policy Committee Meeting.

The reduction in T-bill rates from 16.93 to 15.88 per cent has raised concerns among investors and market watchers over its impact on the exchange rate.

Professor Quartey highlighted that the sharp decline in T-Bill rates had led to a shift in investor behaviour, with many opting to divest from local bonds and treasury instruments in favour of holding foreign currencies, particularly the US dollar.

“If we are not careful, this artificial decline in T-Bill rates will put pressure on our foreign exchange reserves. People are already buying dollars and stopping investments in local instruments. This will only worsen the cedi’s depreciation,” he stated.

The ISSER Director pointed out that the current fixed deposit rate of 10 per cent, in comparison to the soaring inflation rate of 23 per cent, made it unattractive for investors to keep their funds in local currency.

“Why would anyone invest in a 10 per cent fixed deposit when inflation is at 23 per cent? It doesn’t make sense. People are naturally seeking safer havens for their money, and this is causing a currency substitution problem,” he said.

Professor Quartey also expressed concern over the broader implications of the trend for monetary policy and economic stability.

He noted that the decline in T-Bill rates could create significant challenges for the Bank of Ghana and the government.

“If investors continue to sell off local bonds and treasury bills, it will become increasingly difficult for the government to raise the needed funds to support critical sectors of the economy,” he said.

The economist further emphasised the need for a diversified approach to economic management, including a focus on gold and other export commodities to mitigate political and economic shocks.

“We need to revise our export retention schemes and ensure that we are not overly reliant on a single source of revenue. Diversification is key to sustaining growth and stability,” he said.