Accra: The Bank of Ghana (BoG) absorbed a record GHS389.1 billion of excess liquidity in the first quarter of 2026, marking the highest liquidity drain for at least six years. This development points to rising liquidity pressures as declining yields and selective borrowing left substantial cash in the system, as per a Black Star Brokerage insight of the period.
According to Ghana Web, monthly data indicate that the pace of liquidity absorption accelerated as the year progressed. The central bank drained GHS112.5 billion in January, GHS121.2 billion in February, and GHS155.4 billion in March, highlighting intensified liquidity pressures over the quarter. The March figure represents the largest single monthly mop-up during the reviewed period.
The surge in liquidity coincides with a rapid compression in domestic yields. Monetary easing and a government borrowing strategy have pushed rates lower across the curve. Treasury bill yields dropped into single digits for the first time since the debt crisis, with the 91-day bill falling to about 4.8 percent, the 182-day to 6.6 percent, and the 364-day to 9.8 percent.
The broader government bond market also experienced a sharp repricing, with yields dropping from above 22 percent in March 2025 to a range of roughly 10 percent to 13 percent by March 2026. This decline in yields has been partly driven by government policy, which rejected approximately GHS59.97 billion in bids during primary auctions in the first quarter, accepting GHS104.1 billion out of GHS164.1 billion tendered. By limiting acceptance at higher rates, the Treasury effectively compressed borrowing costs, reinforcing the downward trend in yields.
The central bank's increased reliance on sterilisation operations reflects an effort to manage these spillovers and maintain monetary stability. A Black Star Brokerage report noted that government acceptance hit a three-month low as weak yields dampened investor participation in March, due to the growing mismatch between investor expectations and pricing levels in the domestic debt market.
Investor behavior has adjusted to the lower-rate environment. Demand has shifted toward longer-dated instruments, with accepted volumes for 364-day bills rising to GHS36.6 billion in the first quarter compared to GHS23.9 billion for 182-day bills. This trend suggests investors are seeking to lock in yields ahead of further declines, anticipating continued easing or sustained low interest rates. However, participation has shown signs of weakening as yields fall, with monthly primary auction acceptance dropping to about GHS20.6 billion in March, indicating that some investors are becoming less willing to allocate funds at compressed rates. This dynamic has contributed to the accumulation of liquidity, as funds remain unplaced in government securities.
Secondary market activity has absorbed part of this excess liquidity. Trading volumes in bills and other fixed-income instruments increased to approximately GHS35.8 billion in March, up from GHS20.2 billion for the same period a year earlier. The rise in activity points to stronger market participation and increased circulation of funds, even as primary market dynamics remain constrained.
The macroeconomic backdrop has supported this transition. Inflation fell sharply to 3.2 percent in March 2026, providing the BoG with scope to reduce its benchmark policy rate by 400 basis points to 14 percent. The decline in inflation has been driven by easing food prices, lower imported inflation, and improved supply conditions, creating a more accommodative environment for monetary policy. However, some inflationary pressures remain, with services inflation at about 7.2 percent and elevated housing-related costs.
Growth conditions remain stable but are showing signs of moderation. Ghana's economy is projected to expand by 5.5 percent in 2026, down slightly from 5.8 percent in 2025. The services sector continues to lead growth, supported by information and communication activities, while agriculture and industry remain more subdued. In the foreign exchange market, the cedi depreciated by about 4.4 percent against the US dollar in the first quarter, an improvement compared with previous years but still indicative of underlying external pressures.
The interaction between liquidity conditions and exchange rate stability will be a key area to monitor. Excess liquidity, if not effectively managed, could spill over into the foreign exchange market, putting additional pressure on the cedi. The central bank's sterilisation operations have so far contained these risks, but the scale of intervention required points to underlying imbalances.
The current environment also has implications for financial markets beyond fixed income. Lower yields have reduced the attractiveness of government securities, encouraging a reallocation of capital toward other asset classes. The equity market has benefitted from this shift, with the Ghana Stock Exchange Composite Index posting strong gains in the first quarter. However, the extent to which these gains are driven by fundamentals versus liquidity conditions remains an open question.
The central bank faces a complex balancing act. Lower inflation and stable growth provide a basis for continued easing, while rising liquidity and shifting investor behavior require careful management to prevent instability. The record level of liquidity mop-up in the first quarter highlights the scale of this challenge. The government's borrowing strategy will also play a critical role, as continued rejection of bids at higher yields may help contain borrowing costs but could sustain liquidity pressures and limit effective market clearing.
The outlook suggests a period of normalisation rather than continued rapid adjustment. Inflation is projected to rise modestly to between 7.5 percent and 8.5 percent by the end of 2026, while the policy rate is expected to remain within a range of 10 percent to 14 percent. The exchange rate is forecast to weaken further, and yield levels may stabilise as market conditions adjust. The trajectory of liquidity will depend on how these factors evolve. If yields stabilise and investor participation improves, the need for large-scale sterilisation may diminish. However, if current dynamics persist, the central bank may need to maintain an active role in managing liquidity.