US$375m committed to FX forward market

In the first half of 2020, the Bank of Ghana has committed a total of US$ 375 million onto the forex market through its forex forward auctions, following the twelfth FX forward auction for the year.

Bids submitted during the auctions for the half-year amounted to US$ 927.14 million, of which US$ 453.04 million and US$ 474.10 million were for the first and second quarters, respectively.

The BoG accepted only US$ 375 million, which represents 52.45 percent of the total targeted amount for the year.

However, the total amount the central bank may have actually released onto the FX market through forwarding sales during the first half of the year remains unclear since it is actively involved in the spot market as well.

The forward market bids submitted were for the 7-day, 15-day, 30-day, and 45 -day tenors as well as the 60-day and 75-day tenors.

In total, 1098 bids were submitted but only 471 of the bids were accepted by the central bank. The demand for Forex was highest in the month of May 2020, as a total of 228 bids were submitted.

In May 2020, the BoG announced that, in order for the country to stand ready for any possible major spike in demand for the US dollar in the near future, it had engaged the U.S. Federal Reserve for a US$ 1 billion repurchase agreement (REPO) facility available for Foreign and International Monetary Authorities.

The facility is expected to be available for at least six months, and provides an important foreign exchange buffer to boost dollar liquidity amid the COVID-19 global pandemic, and will indeed further enhance the BoG’s dollar liquidity.

Dr.-Ernest-Y.-Addison-Governor-Bank-of-Ghana-BoG

The initiative by the Bank has been viewed as prudent by many market analysts, since it certainly preempts any possible shocks that may come from a sharp increase for demand for the US dollar in the short-term, at a time when forex inflows from the major sources have declined drastically.

So far this year, the cedi has depreciated against the U.S. dollar by about 2.09 percent, and 2.37 percent against the Euro. However, the cedi has appreciated by 4.01 percent against the Pound Sterling.

Background

The 2020 FX auction calendar indicated that BoG plans to issue US$ 80 million per month in the first three months of this year. But for the first auction held in the month of February, the Bank accepted only US$ 25 million, well below its target.

Subsequent data however shows that the central bank is maintaining the amount to be sold per month at US$ 50 million for the rest of the quarters – bringing the total target for 2020 to US$ 715 million, according to the year’s FX forward sales auction calendar.