Business News of 2014-04-08

Investments in cedis yield higher than dollars

The Managing Director of Union Savings and Loans Company (USLC), Mr Philip Oti Mensah, has advised the investing public to kill their growing preference for dollar-denominated investments, explaining that the cedi ones often return higher yields.

Opting for cedi-denominated investments, he said he could also help strengthen the local currency as it would take the pressure off the currency.

Mr Mensah gave the advice in an interview with the Daily Graphic shortly after his outfit hosted some of its clients to a breakfast meeting in Accra.

The meeting was to afford Union Savings, acclaimed as the oldest savings and loans company (SLC) in the country, the opportunity to better understand the needs of its clients.

It also served as a platform for the Bank of Ghana (BoG) to discuss the essence and technicalities of its latest directives on the foreign exchange market to clients and the public as a whole.

The Union Savings's managing director said although many people had seen the BoG's latest directives as harsh, they were actually in the interest of businesses, especially if they applied them diligently.

"What we are saying is that you can rather keep your money in cedi and earn interest that will cover any depreciation risk of dollar. If you look at the trend in the last five years, the cedi never depreciated by more than 20 per cent in any year but the treasury bill rate is always around 22 per cent on average and financial institutions such as us always pay above T-bill rates. So, you are more secured keeping your money in cedis so that if you want to do any kind of transaction, we can facilitate it," Mr Mensah said.

BoG agrees

The Head of the Banking Stability Department of the BoG, Dr Benjamin Amoah, who was the guest speaker, corroborated Mr Mensah's position, noting that the growing appetite for dollar investments was rather to the detriment of such investors.

He explained that the BoG, which was the regulator had the responsibility to ensure stability in the monetary sector, something he said was often done to the benefit of the local currency and its related assets.

"That is why when the central bank realised that there is pressure on the cedi, they increased the policy rate, which translates into risks in the system and makes cedi assets far yielding and rewarding. So, even if the cedi will depreciate, it will not depreciate more-than T-bill rates and so I just want to collaborate the MD's point that cedi assets are more rewarding than dollar ones," Dr Amoah added.

He further wondered why foreign investors were always eager to convert their foreign currencies into cedi and buy the bank's five and seven-year bonds, while local investors rather used foreign currencies to invest.

"It tells you that the foreign investors have seen the value in cedi assets but we don't and that is bad," he added.

Some of the participants in the function further called on the BoG to ease its directives on the market, explaining that it limited their business transactions abroad.

Dr Amoah, however, said the measures would not be reversed until a review by the bank showed that the objectives for introducing them were achieved.

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