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The Bank of Ghana (BoG) has decided to intervene on the foreign exchange market with a daily supply of $20 million to allow foreign investors to participate in the country’s short-term debt instruments.

This is in a bid to boost liquidity on the money market.

The intervention is also to scale up dollar sales on the interbank market from $14 million a week in a renewed attempt to stabilise the cedi, which has shed more than 20 per cent in value against the dollar in recent times.

The Governor of the BoG, Dr Henry Kofi Wampah, told the Daily Graphic in an interview in Accra yesterday that the move would enhance secondary market development and boost liquidity on the money market investment to impact on the cedi.

“We expect the cedi to stabilise by the end of the first half of the year when we have some major offshore inflows,” he said. The government, which currently allows only foreigners to buy domestic notes with terms of three years and higher, now plans to allow foreigners to buy into maturities lower than two years.

The government’s short-term debt market of one-year and two-year auction is currently reserved for local Ghanaians, while foreign investors are encouraged to invest in long-term instruments of three years upwards. "We have raised our intervention significantly over the past two weeks. This is going to continue and we will do more as and when necessary to ease pressure on the cedi," he said.

Expected offshore inflows

Dr Wampah said the robust interbank intervention would continue, saying he expected dollar inflows from donors, as well as the Eurobond and the cocoa loan, to boost the central bank's foreign exchange reserves.

Last year, foreign investors bought GH¢168 million ($60 million) or about 80 per cent of the three-year notes sold by the central bank. The 25.48 per cent yield on the GHc207.1-million sale was “too high”, forcing the BoG to reject some bids. It had offered GHc400 million.

This means that offshore investors who want to participate in the country’s short-term debt market can exchange their dollars at the various commercial banks for cedis for the purchase of the debt instruments.

This is expected to boost liquidity on the money market and improve the foreign exchange reserves of commercial banks, increase the supply of dollars on the market to meet demand and reduce the pressure on the cedi. This will consequently reduce demand for the dollar and help stabilise the cedi.

Dr Wampah said the bank had started receiving donor inflows and expected US$500 million by the end of the third quarter. "We expect to have a very healthy reserve position by the end of September," he added. The cedi weakened to a near record low against the dollar at GHc4.3900 on Wednesday, down nearly 24 per cent since January.

Ghana, which exports cocoa, gold, oil, among others, is implementing an aid deal with the International Monetary Fund (IMF) to restore fiscal stability. An IMF team is reviewing the implementation of the deal ahead of the possible release of a second tranche of funds.

Aborted measures

Last year, the central bank introduced a string of foreign exchange controls in a bid to halt the depreciation of the cedi, resulting from chronic trade and current account imbalances. It also pumped in daily circulation of US$20 million to fend off mounting inflation and stabilise the cedi.

The measures limited access to foreign exchange and restricted trade transactions in the country to the cedi, within what was until recently one of Africa’s top performing economies and most popular frontier markets. But, the measures were suspended after fierce criticism from the business community and the general public.

Forex hoarders

Last year, foreign currency hoarders and some forex dealers lost huge sums in cedis from wrongly anticipating a further fall in the cedi’s value against the major trading currencies during the local currency’s free fall which peaked to about GH¢3.8O to the dollar at the end of August.

The forex dealers made heavy prof­its during the continued slump in the value of the cedi against the trading currencies, especially between April and August 2014, by simply stocking up those foreign currencies as their value rose against the local currency.

Most, however, said they had hoarded huge chunks of their forex in anticipa­tion that the exchange rates would skyrocket further around the Yuletide.

Following the cedi’s strong recovery in the beginning of September, the hoarders made heavy losses and sought to offload their holdings of the foreign currency which was losing value. With these latest measures being introduced by the BoG, analysts say we are likely to have a repeat of last year’s scenario.