Treasury yields are expected to continue steady decline as inflation softens and the monetary policy stance eases.

According to GCB Capital, this is due to the significant fall in inflation to 26.4% in November 2023.

“At 26.4%, the real returns on T-bill yields have turned positive, and the real policy rate has also turned positive, which is ideal for firmly anchoring inflation expectations. With this continuously tight monetary policy stance supported by the reforms, we expect the disinflation process to continue through quarter one 2024, all things being equal”.

“However, given the lingering growth concern, the punitive credit conditions and the contracting loan book due to increased risk aversion, the monetary policy stance could pivot by March 2024, albeit cautiously, in support of growth once inflation subsides sufficiently near the 20% level”, it pointed out.

It therefore expects the Bank of Ghana to strive to maintain a healthy and positive real monetary policy rate to effectively balance the risks to inflation and growth along with a complementary fiscal stance to sustain the ongoing economic recovery.

It flagged the government’s sizeable deficit obligation, which will be financed predominantly from the T-bill market, as a risk to continuous disinflation and a decline in yields in the near term and may require stricter discipline, expenditure rationalisation and unlocking concessional financing to sustain the decline in inflation and nominal yields.

Headline inflation declined sharply to an 18-month low of 26.4% (-8.8%) in November 2023. The decline was driven largely by a favourable base drift and the ongoing macroeconomic and structural reforms across the fiscal and monetary sectors of the economy.