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Ghana Supporting Third-Worst Currency With Treasury Rates

Ghana’s central bank said it’s supporting the world’s third-worst performing currency against further losses by pushing up Treasury rates to lure investment.

The country’s benchmark 91-day Treasury bill rate rose to 12.35 percent in the March 16 weekly auction, the highest level since October 2010, according to the central bank’s website. It increased to 12.61 percent at the close of the auction today, the highest since August 2010, according to the bank’s data.

“An increase in government borrowing requirements has put some upward pressure on the rates but part of the increases you see are meant to reduce the amount of money in circulation to ease pressure on the cedi,” Grace Akrofi, acting head of research at the Bank of Ghana, said in a phone interview yesterday. “Banks can decide to invest their excess liquidity in dollars, which would weaken the currency, so instead we are trying to attract them to Treasury bills by making adjustments to the rates on offer.”

Ghana’s economy expanded 13.6 percent in 2011 and the Finance Ministry expects a 9.4 percent pace this year after the west African nation’s Jubilee oil field began production for export in 2010. The expansion has spurred declines for the cedi as local producers seek dollars to buy equipment and raw materials. The exchange rate weakened 10 percent against the dollar last year and is down 7.6 percent this year, the biggest drop among 175 currencies worldwide after Iran’s rial and Sri Lanka’s rupee.

The cedi gained for the second straight day, adding less than 0.1 percent to 1.7638 per dollar as of the 4 p.m. close in Accra.

‘Tightening Effect’

The Treasury rate increase may help to ensure that the cedi doesn’t weaken beyond 1.80 per dollar this year, Stephen Bailey-Smith, an emerging-market strategist at Standard Bank Plc in London, said in e-mailed comments.

“Tighter monetary policy -- which you are seeing in the T-bill yields -- will clearly place some pressure on borrowing both on the public and private side of the economy,” he said. “In fact, there is arguably a need to slow down import demand.”

The higher Treasury bill rate “may exert -- over time -- more of a tightening effect, by curbing demand for loans,” Razia Khan, London-based head of Africa research at Standard Chartered Bank Plc, said in an e-mail. “We should expect more policy interest rate tightening from the Bank of Ghana as the treasury bill yields rise.”

The central bank raised its main interest rate by 1 percentage point to 13.5 percent on Feb. 15, the first increase in three years. The decision was intended “to affirm the need to mop up excess liquidity from the system to restrict inflationary pressure as well as the threat by the cedi to weaken significantly,” Akrofi said.


Inflation slowed to 8.6 percent in February from 8.7 percent the month before as increases in food prices eased, the statistics agency said March 14. The rate held at 8.6 percent for the three months through December.

The yield on Ghana’s 8.5 percent 10-year Eurobond that matures in October 2017 rose 3 basis points to 5.505 percent today, capping a fifth week of declines.

The cedi declined last year even as the central bank sold $4.1 billion to support it, an increase from $1.7 billion in 2010.

“The currency suffered because the Treasury bill rates were kept low,” Akrofi said.

The 91-day yield may rise further as the Bank of Ghana prepares for its next policy rate decision, “likely to be held in the second week of April,” said Akrofi.

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