Assessing treasury bills performance in the monetary policy of Ghana

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There is little doubt that the rates of growth of the money supply and the level and structure of interest rates have important implications for the successful operation of the macro-economy. Therefore it is expected that these variables will be of relevance to the government’s economic policy position. The precise significance attached to monetary variables will, of course, depend upon the government’s belief about how the macro-economy operates and upon its broad economic philosophy. But nevertheless, it is likely that at some stage the authorities will wish to influence the money supply or the level and structure of interest rates for policy purposes. To do this authorities fall on instruments such as instruments of market intervention (i.e. Open Market Operations, and the manipulation of the central bank’s discount rate.) Open market operations involve the central bank in buying and selling securities in the open market. Though it is generally agreed that these operations work best in countries where there is a well- developed financial system, and a large and widely held outstanding national debt, this study helps assess its performance in a developing country like Ghana where the government uses it as a tool for financing its projects instead of using it for monetary management purposes. The study therefore sought to find out the extent to which Treasury bills aid monetary management in Ghana, to improve monetary management with the use of Treasury bills and to find ways by which the government will be able to improve the monetary management of the economy with the money borrowed through treasury bills. The study covered treasury bills (with its corresponding discount rates) issued at the primary auction, which involves all institutions dealing in treasury bills transactions for the period 1998-2003. Inflation rates, Money supply, Interest rates of Commercial banks, Loans/advances and Deposits of selected banks for the same period were analysed using Correlation. The results however showed that, changes in the discount rates of treasury bills does not affect the volume of sales of treasury bills, treasury bills do not influence money supply of the country, treasury bills has an influence on the rate of inflation though not too significant, treasury bills has no influence on the interest rates of commercial banks, banks credit creation ability is not influenced by sales of treasury bills and finally treasury bills do not in any way reduce the bank’s ability to give out loans and advances.
A thesis submitted to the Department of Economics and Industrial Management, College of Arts and Social Sciences,Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for award of Masters Degree in Business Administration, 2004