Market analysts are predicting that proceeds from the 2021 Eurobond issuance will boost the stability of the cedi by helping the Bank of Ghana build up its foreign exchange reserves.
The reserves stood at US$8.72bn in February, providing cover for 4.2 months of imports of goods and services, compared with the end-December 2020 position of US$8.62bn, equivalent to 4.1 months of import cover.
Government sold US$3.025bn worth of Eurobonds to international investors on March 29 in four different tranches—a four-year zero-coupon bond and 7-, 12-, and 20-year bonds.
“The proceeds from the Eurobond offer, expected to be settled on April 7, will strengthen the gross forex reserves position and support the BoG’s intervention measures,” said Courage Kingsley Martey, Senior Analyst with Databank Research, in an interview with Business24 on the impact of the issuance.
“The Ghana cedi should find support from the Eurobond proceeds and the domestic liability management exercise. The cedi has enjoyed another impressive start to the year, following the relatively stable outturn in 2020. We view the Bank of Ghana’s commitment to maintain forex reserves above 4 months of imports and deploy same through its strategic FX forward auctions as a crucial anchor for the cedi,” he added.
The cedi appreciated by 0.5 percent against the US dollar in the first quarter of 2021, making it one of the most stable currencies in Africa during the period.
Although a potential outflow of foreign portfolio investment in local bonds remains a risk to cedi stability, Mr. Martey said the Finance Ministry could target a buyback of potential sell orders as part of its liability management.
“This strategy will minimise the portfolio-induced depreciation risk, sustain the cedi stability and anchor low interest rate expectations on the domestic market.”
A forex broker with GT Bank, Jeffrey Papa-Kwesi Tawiah, also said in an interview that the proceeds of the Eurobond will have an immediate impact on the stability of the cedi, but added that the effect will fade over time as usually happens.
“We don’t expect the cedi appreciation to stay for long,” he predicted.
In the first three months of 2021, the BoG committed a total of US$283.75m to the forex market through its forward auctions, which has positively impacted the stability of the cedi.