Interest rates on savings
Interest rates on savings in Ghana: The most accessible would be government treasuries. Ghanaian citizens can purchase Treasury bills as little as GHS100.00 (roughly $21.00). Ghanaian treasury bills offer yields ranging from 16.1% for a 91-day treasury bill to 21.0% for a two-year fixed note.
Unfortunately, foreigners legally may not purchase Ghanaian treasury bills on auction. It restricts them to treasuries with maturities of two years or longer. And you must purchase a minimum of GHS100,000 (roughly $21,000.00). But it permits them to buy on the secondary market, which is reasonably active.
How does one go about purchasing Ghanaian treasuries?
But local and foreign investors can also get exposure to these instruments through several local funds.
- Databank’s M Fund is probably the easiest way for retail investors to invest in Ghanaian government securities. It’s a money market fund with a very low minimum invest amount—GHS50.00—and it offers a yield exceeding 19.0%.
- First Fund is an open-ended money market fund which invests in money-market instruments, including Bank of Ghana treasury bills and bonds, high-quality corporate bonds, commercial papers and certificates of deposits.
- HFC Future Plan Trust is a collective investment scheme whose main aim is to invest mobilized funds-term money market securities. It invests in bonds, debentures, fixed deposits, treasury instruments and commercial paper. The fund is open to all individuals and institutions who can afford the required minimum contributions. Parents can also invest in trust for their children and dependents.
How do the yields on Ghanaian treasuries compare to the interest rates on savings products at local banks?
Yields on T-bills, notes, and bonds are considerably more attractive than interest rates on savings accounts. In 2016, interest rates on local savings accounts ranged from 1% to 12%. This was much lower than the 17.2% rate of inflation. Meanwhile, the yields on treasuries were 22% to 24.75%. This gave investors an ample premium to cover inflation and currency risk.
Yields on treasuries have dropped sharply since September, but inflation has, too. It’s 13.3%. There remains potential for a positive return on investment compared to the negative real return on savings accounts. This nominal interest rates have quite a rigid ceiling.
The high rate of inflation suggests that there may be significant currency depreciation over the next year or two. Do you have any tips for investors on how to test whether Ghanaian treasuries are worth the currency risk?
There are two key drivers of Ghana’s inflation. High fiscal deficit financing and exchange rate pass-through result in demand pressures. hikes in utility tariffs, prices of petroleum products, and low productivity in the economy results from Cost pressures.
In the last 12 to 24 months, cost-side pressures rather than forex pressures result from Ghana’s inflation. This is because, the Central Bank already maintains a tight monetary stance to contain the forex and demand-side pressures. At the moment, the monetary policy rate stands at 26%.
Cost-push pressures have elevated inflationary pressures since 2015. Because the 59% and a 67% hike in electricity and water tariffs in December 2015 heightened inflationary expectations. Tax measures in 2016, prices of petroleum products, and a 15% change in transport fares added to inflationary pressures. As a result, inflation surged to a peak of 19.2% before retreating gradually toward the end of 2016. And to a level of 15.4% in December 2016 as these cost-side pressures eased.
A five-year average of annual depreciation of the cedi versus the dollar, shows a 17.3% average depreciation rate. To bypass forex risks, the acceptable coupon rate for medium term debts must not be below 17%.