MARKET

Although it came under pressure last week following government decision to pull out of a fifth Eurobond issue, the cedi, analysts believe, should weather the storm, on the back of stable demand and supply of dollars in the market.

Last week the currency rose to 3.95 to the dollar from 3.80, after government announced it will only “issue new notes at the optimal time and the right conditions.

”In its weekly currency update, RMB Global Markets Research said whilst the possibility of an unmitigated spending spree this election year is limited due to the presence of the IMF, “it may be a cause for investors to demand a higher premium for owning the credit.”It said, however, that the cedi remains “relatively stable on the back of stable demand and supply of dollars in the market.

”Due to the new FX rules, the Bank of Ghana from this month is surrendering US$150 million in export proceeds to commercial banks just to shore up the cedi.

Sampson Akligoh, Managing Director of InvestCorp-an investment bank, told the B&FT he also does not see a noticeable deprecation of the cedi in Q3-2016, adding, that the current trend is likely to continue.

“Reasonably, the tight monetary policy condition is helping to contain institutional portfolio investors, and the extent to which this will continue depends on policy credibility,” he said.

Resident Economist at the Institute for Fiscal Studies, Leslie Dwight Mensah, also said he does not expect the Eurobond hold-up to have an immediate strong impact on the exchange rate, especially as the government has indicated it is likely to return to the market.

But what could be more damaging to the cedi's prospects, Mr. Mensah said, “is if the fiscal consolidation suffers some sort of setback, since this could dent investor confidence and cause a slowdown in broader capital inflows from abroad, putting pressure on the exchange rate.

”He urged government to re-examine the borrowing plans for 2016 because, in all likelihood, a Eurobond will be costly.

Government was hoping to raise at least US$1billion from the Eurobond market in addition to the expected US$2billion from the cocoa syndicated loan this year to support the currency and repay maturing debt next year.

But investor’s itchiness about the country’s creditworthiness has led them to demand higher interest rates on the bond which put the government off and has thus created a gaping hole in its financing mechanism and debt strategy moving forward.

But the local currency has been able to withstand pressures from market forces since January 2016, thanks, partly to regular foreign currency supply, the presence of the International Monetary Fund (IMF), and new FX rules by the Central Bank.

The currency has lost about 3percent of its value this year, especially against the USD and has been hovering between GH¢3.80 and GH¢3.95 since January. Previous years have seen between 15 to 40percent currency depreciation.

Responding to a question as to what government should do in order to raise the required capital and still not hurt the economy, Mr. Akligoh of InvestCorp noted that there are uncertainties in the global economy and that it will make access to the capital market more difficult for frontier markets.

“Ghana will continue to face pricing issues especially because of the elections, state of engagement with the IMF, and existing debt levels,” he said.

Mr Akligoh expressed worry that Ghana’s argument against fiscal risk is getting weaker, although he thinks government still has time to make room for alternative means of raising finance if it anticipates any disruptions to the current debt management strategy.

He added, however, that “we need to get to that stage where Eurobond is just an option.” 

 

Soure: B&FTonline

 

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