Government, this week, is expected to raise a three-year bond with the ultimate aim of using the proceeds to sustain gains the cedi has made against other trading currencies. The bond, which forms part of government’s debt-raising plan for the first quarter of the year, will see books open today.
The local currency has held its own against the greenback this year. As of yesterday, the local currency had gained up to 4.6 percent against the US dollar. A week and a half ago, the appreciation stood at more than 6 percent. Meanwhile, in January 2019 alone the cedi had depreciated close to 3 percent against the dollar, and by 13.4 percent at the end of 2019.
Despite growing pressures on the cedi as a result of investors looking elsewhere in the face of coronavirus and increased demands from banks, which have seen some gains eroded, managers of the currency and expert analysts believe the cedi will remain strong against its partners.
Last week a total of GH¢388.93million in bids for the 91-day bill were accepted at an interest rate of 14.73 percent. The 182-day bill came in at an interest rate of 15.17 percent, with all GH¢91.32million tendered bids accepted. Also, all GH¢129.15million tendered bids were accepted for the 364-day bill at 17.71 percent.
Government has targetted a total of GH¢1.1billion for the 91-, 182- and 364-day bills in the next auction.
For the first quarter, government plans to issue a gross amount of GH¢19.1billion, of which GH¢15.69billion is to rollover maturities; and the remaining GH¢3.4billion is fresh issuance to meet government’s financing requirements.
Sustaining cedi’s strength
Analysts believe that the BoG’s new FX auction strategy that seeks to pump some US$240million into the forex market during the first quarter, in addition to government’s planned seven-year bond auctions, will strengthen the cedi.
BoG’s FX forward auctions calendar seeks to simply reduce the incidence of speculation about the exchange rate. With this strategy, the Bank of Ghana (BoG) agrees with banks on a specific price it will sell the dollar to them within a certain period of time. What this means is that once banks are aware, the BoG will sell FX at fixed prices within that period – and there will be no need for a mad rush for dollars by banks because of anticipated loss or increase in exchange rate value.
And per the FX forward calendar, the central bank is ready to inject US$80million every month within the first quarter to meet growing demand for dollars within this period. Every two weeks after, US$40million will be injected into the economy to shore-up the currency.
Thereafter, when demand is no longer high (after the first quarter), with the exception of June 2020, US$50million will be injected every month. Cumulatively, BoG will inject a total US$715million into the economy for the whole of 2020.
A report by First National Bank corroborates an earlier one by Databank Research, which expressed confidence in the central bank’s FX interventions strategy and monetary policy decisions as key to maintaining the cedi’s stability.
“We feel assured by the posture of monetary authorities in maintaining a broadly stable Ghana cedi in 2020. Our optimism is grounded in the Bank of Ghana’s bi-weekly FX forward auctions, which will deepen forward trading and limit spot market pressures.
“We view the higher-sized allotments for Q1-2020 as reflecting the Bank of Ghana’s commitment to increase forward activities in Q1-2020, when seasonal pressures tend to shock the spot market,” the Data Bank Research said.