Ghana’s Measures to Boost Cedi Seen Raising Treasury Yields

Ghana’s three-month borrowing costs are poised to climb to the highest since February 2010 as the central bank implements measures to stem a drop in the cedi, the world’s third-worst performer against the dollar this year.

The 91-day Treasury-bill rate, used by banks as a benchmark for setting their own lending rates, may rise to 16 percent by the last auction in December, Kobla Nyaletey, head of liquidity management and market making at the Ghanaian unit of Barclays Plc, said in an interview on May 3. That would be the highest since Feb. 26, 2010, when 91-day borrowing costs reached 16.5 percent. The rate rose to 15.4 percent at an auction on May 4.

The central bank’s measures, meant to strengthen the cedi by removing excess local money from the market, will make assets denominated in the domestic currency more attractive than dollar-denominated ones, Nyaletey said. The weakening cedi drives up the cost of goods in Ghana’s import-dependent, $31 billion economy, adding pressure on inflation.

“The policy directives essentially will drain cedi liquidity from the market,” he said. “Recent policy-rate hikes and jumps in the government yield suggest the Bank of Ghana is predisposed to see cedi interest rates rise and make the cedi expensive.”

Ghana’s central bank raised its benchmark interest rate for the second time in three months to 14.5 percent on April 13 after the cedi slumped to the lowest in at least 19 years. It has depreciated 12 percent this year, the second-worst in Africa after the Malawian kwacha dropped 16 percent today following a devaluation, according to data compiled by Bloomberg. The Myanmar kyat is the world’s worst performer this year. The cedi dropped less than 0.1 percent to 1.8637 per dollar by 9:30 a.m.

Cedi Reserves

Ghanaian lenders, which keep 9 percent of local and foreign currency deposits as reserves with the central bank, will now keep all reserves in cedis, according to a directive issued by the central bank on April 30. Banks must also provide 100 percent cover at the central bank for all so-called vostro balances, or cedi accounts held by foreign financial institutions, according to the policies.

“Banks may have to resort to borrowing cedis or even selling off some of their cedi investments to meet the reserve requirement,” Philip Duodu Fynn, head of treasury at CAL Bank Ltd., said in an interview at his office on May 4 in Accra.

The Bank of Ghana also re-introduced Treasury bills with maturities of 30, 60 and 270 days to support its move to mop-up liquidity by providing other ways to invest in cedi assets.

“They represent useful additions because sometimes investors come and say I want 30 days or I prefer to hold the cash,” Fynn said.

He expects the 30-day note to yield about 13.2 percent and 13.5 percent for the 60-day bills.

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