The Bank of Ghana has extended the tenors for the forex forward rates auction, as part of measures to reduce the demand pressure on the FX spot market.
This demand pressure for immediate or almost immediate delivery of forex was evident in the amounts and tenors of bids presented at the latest FX forward auction held on November 26, 2019, where, instructively, the central bank did not accept most of the bids tendered at the shorter end of the auction profile
Commenting on this issue, the Governor of the central bank, Dr. Ernest Addison noted that the Bank is extending the profile of the auction tenors that are currently being offered on the FX market.
“We are extending the profile of the rates that are being quoted in that market. It has also helped lifted off the pressure on the spot market that also has probably contributed to some of the stability that we have seen,” the Governor said.
Earlier auctions held point to the fact that bidders are mostly interested in the shorter end of the profile such as the 7-day, 15-day, and 30-day. This suggests worries over the ability of the central bank to deliver forex over the relatively longer tenors. However, if the BoG had acceded to all those short tenured bids it would have defeated the core purpose of the forward sales.
From the auction held on November 26, 2019, the central bank will in the coming weeks issue onto the forex market a total of US$ 3,750 million.
A notice from the BoG indicates that bids amounting to about US$ 83.6 million were received from businesses through their dealers and commercial banks against the target of US$ 25 million. However, only US$ 3.75 million were accepted, these being bids that fit the tenor profile targeted by the BoG.
The bids submitted were for 7-day, 15-day, 30-day, and 45 -day tenors. In total, 110 bids were submitted but only 7 of the bids were accepted by the BoG. More bids were submitted in this round compared with the previously held auctions.
Of the 51 bids submitted for the 7-day tenor at US$ 43.38 million, the central bank accepted none of those bids. For the 15-day tenor, US$ 1 million was accepted out of the US$ 24.67 million bid for, while the 30-day and 45-day bids were allotted US$ 1.75 million and US$ 500,000, respectively.
The Bank accepted one bid for the 75-day tenor auction for US$ 500,000 at a rate of GHc 5.4604 to US$ 1.
A total of US$ 3.30 million were rendered as invalid bids.
The forward FX auctions form part of efforts to create more certainty for clients for future FX needs and ease the customary end of year period pressure on the spot FX market.
It is expected that the central bank will open another window to provide foreign exchange to bank clients based on verified commitments.
Background
The auction was held with a maximum bid size of a single bid not exceeding 10 percent of the announced target for the auction. The cumulative volume of all bids from any single bank were not to exceed 20 percent of the announced target for the auction.
The central bank expected that the maximum bids to be submitted should not exceed three bids per authorized dealer banks.
Successful banks are expected to provide the required Cedis on trade date in the case where they are buying a forward contract. Allowable spread between bids and offers for banks’ clients is 25 pips/0.0025 Cedis.