News and AnalysisPan African

2 May 2024



    Fixed Income: Money market liquidity tightened sharply in April 2024 as the Bank of Ghana tweaked the cash reserve ratio (CRR) for banks, based on each bank’s loan-to-deposit ratio. Resultantly, average weekly bids at the T-bill auctions dropped by 37.5% m/m to GHS 3.12bn per week and undermined the Treasury’s capacity to cover its auction targets in April 2024. Notwithstanding the tighter market conditions, the Treasury sustained its yield compression strategy, albeit at a slower pace compared to the past months. We estimate the upcoming T-bill maturities in May 2024 at GHS 13.25bn (-11.4% m/m), translating into an average weekly bid of GHS 3.31bn required to cover the upcoming maturities. Based on the weekly pattern of bids observed since the hike in the CRR, we expect sufficient investor bids to cover the estimated maturities but remain downbeat on the target coverage. We, however, expect yields to sustain the decline on the back of expected lower inflation for April 2024.

    Currency: The Ghanaian Cedi continued its streak of depreciation against the major international trading currencies in April 2024, albeit at a slightly reduced pace compared to the prior month. We continue to see elevated FX demand from the real sector, especially energy and manufacturing as global energy prices soar while the bi-weekly FX auctions covered only 20% of FX needs by oil importers. Although we view the recent staff-level agreement with the IMF and potential inflow of USD 360mn in June 2024 as FX-supportive, we remain cautious on debt restructuring and upcoming election uncertainties as pressure points.

    Fixed Income: Investor demand for Kenyan Treasury bills rebounded in April 2024 with strategic allocations ongoing to lock-in double-digit yields amidst the yield downturn. As expected, yields commenced a downturn in April 2024 on the back of strong KES appreciation with a cooling effect on inflation which fell for the third straight month to 5.0% y/y in April 2024.  At the April 2024 MPC meeting, the Central Bank suggested that fixed income yields have reached the peak, in line with our views. While the market has taken the lead on declining yields, we expect the MPC to anchor this downturn with a potential cut in the CBR at the June 2024 MPC meeting.

    Currency: The KES appreciation which commenced in February 2024 peaked in mid-April 2024 with a 1.2% gain against the USD in the first 2-weeks of April. However, depreciation pressure re-emerged in the 2nd half of April to drag the KES to a modest m/m depreciation of 1.1% (+17.4% YTD), virtually aligning with its March 2024 1-month forward rate of 134.8/USD. In the months ahead, we expect the KES to be anchored on a steady improvement in forex reserves to be boosted by World Bank and IMF inflows.

    Fixed Income:  Investor demand for Nigerian Treasury bills (NTBs) fell for the third straight month in April 2024 as money market liquidity continues to dwindle in response to the hawkish Central Bank policy stance.  Notwithstanding the softer demand, the auction target was comfortably covered by 8.8x as liquidity levels remained sufficient to support the Treasury’s borrowing requirement. Primary market yields were broadly stable at their elevated levels with a downtick at the back-end of the T-bill curve as the sufficiently buoyant Naira liquidity capped the policy-induced upward pressure. However, secondary market yields sustained the upturn as measured by the Nigerian Interbank T-bill True Yield (NITTY)

    Currency: The Naira enjoyed a strong first 2-weeks in April 2024, appreciating by 22.1% as of 17th April 2024 on the back of improved FX liquidity and resumption of Central Bank FX sales to Bureau De Change (BDC) operators. However, depreciation pressures mounted in the second half of April 2024 following revelation of a drop in FX reserves, which the markets attributed to CBN’s intervention sales to defend the Naira. While the CBN attributes the drop to external debt service, we think the authorities will be measured in future FX sales as effort to rebuild FX reserve continues with USD 2.25bn concessional loan expected from the World Bank.

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