Policy rate eased in first quarter of 2017

05.04.17

The week under review witnessed a significant moderation of the prime policy rate of the Bank of Ghana, underpinned by the recent downtrends in headline inflation and relative stability of the local currency which occurred under tight monetary policy.

The policy rate which for almost a year remained high at 26.00 per cent eased to 25.5 per cent in November 2016. The policy rate remained at this value until Monday, March 27, 2017 where it moderated significantly by 200 basis points (bps) to settle at 23.50 per cent, this being the second moderation in five months. Owing to the downtrend in the prime rate, it is expected that the lending rate will also drop to a much significant level where business starters can access cheaper credit facilities to help propel economic growth and employment creation.

Trading of Government bonds

The Government of Ghana, through the Bank of Ghana, raised an amount of GH¢4.87 billion for the 7-Year and 15-Year denominated bonds at a coupon rate of 19.75 per cent. The 7-Year Bond that traded at an initial pricing guidance of 18.50 – 19.80 per cent received a bid of GH¢1.46 billion. However, the Government accepted GH¢1.45 billion. The government, on the other hand, accepted a total of GH¢3.422 billion out of the GH¢3.427 billion bids tendered. As government focuses on accruing adequate funds that meet its financing obligations and also serve as a buffer for liability management from the money market, yields on treasury securities continue to be relatively high.

This is to recover investors’ appetite and further halt funds diversification into other alternative high yielding financial assets. The 91-day Treasury bill rate marginally trimmed 12 bps to 17.39 per cent while the 182-day Treasury bill rate dipped slightly by 2 bps to 17.18 per cent. Yield on the 1-Year fixed note also declined 50 bps to 18.50 per cent. Yields on other treasury, however, remain unchanged. Following recent consistent rise of yields on GoG treasury instruments, the number of bids tendered by investors kept improving. At Friday’s auction, a total of GH¢1125.20 million worth of bids were tendered by investors, representing 24.85 per cent increment from previous week’s numbers.

Total accepted bids, however, stood at GH¢1032.39 million, representing 91.75 per cent of the total bid tendered in the week’s auction. Short-dated treasury instruments continue to dominate in purchases of government as they accounted for 89.43 per cent to the accepted bid. At the next auction, scheduled for April 7, 2017, the government anticipates to buy GH¢627.00 million worth of the 91-day and 182-day Treasury Securities and GH¢400.00 million of the 2-year fixed note.

Stock Market

The equity market witnessed its second week-on-week decline in the year after experiencing the first fall seven weeks ago. The downtrend of the Exchange was mainly due to the unexciting nature of the 2016 year-end financial report of CAL Bank. This resulted into significant selling pressure in its stocks in the week under review. As a result, the GSE Composite Index shed 1.35 per cent to settle at 1,865.01 points while the GSE Financial Stock Index also dipped by 2.02 per cent to 1,765.32 points.

The year-to-date returns of the indices stood at 10.42 per cent for the GSE Composite Index and 14.23 per cent for the GSE Financial Stock Index. Owing to the selling pressure at CAL Bank Ltd, trading activities were much higher as compared to the previous week. Total traded volume stood at 10.20 million shares, representing about one thousand percent increment. Value of the traded stocks also stood at GH¢6.10 million, representing over one hundred percent increment from previous week’s amount.

Liquidity on the Exchange was driven by CAL Bank as it accounted for 67.23 per cent of the total traded volume following the successful exit of key shareholders. Market capitalisation therefore ended 0.74 per cent lower at GH¢48,846.99 million. Twelve equities witnessed price movements in the trading week, five advancers and seven laggards. Investors at GCB Bank Ltd gained 7 pesewas on their stocks as closing price stood at GH¢5.20 per share.

Ghana Oil Company Ltd and Benso Oil Palm Plantation Ltd also added 4 pesewas and 3 pesewas to trade at GH¢1.25 and GH¢2.90 per share, respectively. Ecobank Ghana Ltd and Standard Chartered Bank Ltd also gained a pesewa each to trade at GH¢7.30 and GH¢15.45 per share, respectively. On the flip side, CAL Bank Ltd went down by 24 pesewas to close at 49 pesewas per share. AngloGold Ashanti Depository Shares also went down by 7 pesewas to trade at 45 pesewas per share. Other laggards on the bourse were SIC Ltd, Societe Generale Ghana Ltd, Ecobank Transnational Inc., UT Bank Ltd and The Trust Bank (Gambia) Ltd.

Cedi grows stronger

On the interbank currency market, the Ghana cedi remained firmer as it appreciated against the U.S Dollar, British Pound and the Euro. The dollar failed to prevent the local currency from registering another weekly gain despite its bullish outlook on the international currency market. The support from the strong data on consumer sentiment to the greenback was subdued by the recent supply boost to the cedi from the dollar denominated forex auction. The dollar thus shed 0.77 per cent to trade at GH¢4.32 last Friday.

The year-to-date depreciation of the local currency to the dollar reduced to 2.79 per cent. The British Pound, despite upturning the Cedi’s performance last Thursday on the back of a rekindled investor expectations of an interest rate hike in the UK, was, however, unable to put the pound in the lead. This brings the week-on-week depreciation of the pound to six since year opening. The heightened investor uncertainties and anxieties prior to the European Union's official response to Britain's letter of exit from the bloc as well as the final report on Britain's economic output last year weighed on the Pound.

The pound thus lost 0.56 per cent to trade at GH¢5.40 last Friday. The year-to-date appreciation of the Pound lowered to 3.85 percent. The 19-bloc currency was outstripped by 1.74 per cent by the local currency on the interbank currency market. The Euro took to the downtrend on the international currency market hitting a two-week low as the sluggish consumer inflation outlook from Germany and Spain dampened investors sentiment. The euro therefore traded lower at GH¢4.62, representing a year-to-date appreciation of 4.05 per cent.

Commodities

Price of Brent crude rose to a three-week high after the release of data by the Energy Information Administration (EIA) which showed a smaller than expected rise in stock inventories in the U.S. Brent crude which recorded a unit selling price of $53.23 last Friday, appreciated by 4.78 per cent with support from the extension of OPEC’s led production cut deal deadline.

Gold closed in the red as upbeat U.S data did not only buoy the value of the dollar but also reinforced investors’ expectations for more interest rate hike this year which has a negative implication on the dollar denominated commodities. Gold lost $2.80 to trade at $1,245.40 per ounce, representing 0.22 per cent decline from previous week’s selling price. Cocoa recorded a loss of $43.50 in the trading week despite the marginal price uptick on the last trading session of the week.

A bumper harvest in most of the world's cocoa producing nations affected the price of the commodity. Top grower “Ivory Coast” for instance had to slash its price significantly in order to reduce the stockpile of the commodity. The soft crop thus sold at 2,087.50 per metric tonne. Coffee recorded a marginal gain of two cents on the back of demand pressure. Price of the soft crop stood at $1.39 per pound last Friday.

Source: Daily Graphic