T. BILLS AND INFLATION TO PEAK IN COMING WEEKS – DATABANK REPORT

Treasury bill yields are anticipated to increase in the upcoming weeks as a result of limited liquidity and the Bank of Ghana’s 22% policy rate.

According to Databank Research, the tightening monetary policy directive is continuing to put upward pressure on yields.

For instance, the 91-day yield increased by 38 basis points to 27.72%, while the 182-day yield increased by 56 basis points to 29.29%.

In light of the policy rate hike, we expect investors to focus on T-bills in the primary market for re-pricing benefits. We expect investors would concentrate on short-term bonds in the secondary market to reduce price losses due to offshore investors’ selloffs and as banks comply with the cash reserve requirement.

Databank Research

Enduring Pressure on Yields

According to Databank Research’s market update, the hawkish monetary policy stance continues to put upward pressure on yields.

In an effort to control inflation, the MPC tightened its policy stance further with a record increase to 22% (+300bps). To further restrict market liquidity and reduce inflation and currency pressures, the Central Bank implemented other complementary measures.

It also stated that the fourth quarter of 2022 will have the highest inflation. Currently, the inflation rate is 31.7%. (July 2022).

We expect a peak in inflation in the 4Q22 when favourable base effect kick in along with subsiding food inflation pressures due to harvest season. With liquidity constrained and the policy rate at 22%, we expect the yields to adjust upwards in the coming weeks

Databank Research

The 91-day to 364-day tenors of this week’s T-bill offer are valued at 1.167 billion to refinance total maturities totalling 1.023 billion.

Last week, there were more transactions on the secondary bond market, with a total face value of 1.7 billion moved (up 1.35 percent week over week).

According to the study, the increase in trading activity was mostly the result of bank and offshore investor selloffs made in an effort to meet the Central Bank’s new cash reserve requirement.

In light of the policy rate hike, we expect investors to focus on T-bills in the primary market for re-pricing benefits. We expect investors would concentrate on short-term bonds in the secondary market to reduce price losses due to offshore investors’ selloffs and as banks comply with the cash reserve requirement.

The Report added