News and AnalysisPan African

1 July 2024



    Fixed Income: Demand conditions improved further on the Ghanaian money market in June 2024 as the pace of decline in yields moderated for the fourth consecutive month, given the FX pressure and the Treasury’s high borrowing needs. When measured against the estimated T-bill maturities for the period (GHS 86.6bn), the total amount raised in 1H2024 (GHS 114.5bn) translated into new money worth GHS 27.9bn, suggesting that the Treasury may be lagging on its FY2024 net domestic financing of GHS 62.7bn. We estimate the total upcoming T-bill maturities in July 2024 at GHS 17.4bn (+18.8% m/m), requiring an average weekly bid of GHS 3.5bn to refinance. In the past 2-months (post CRR-hike), we observed an average weekly bid size of GHS 4.1bn. This suggests scope for the Treasury to raise new money worth GHS 3.2bn in July 2024 (+23.1% m/m).

    Currency: The Cedi’s losses continued in June 2024, albeit at a slower pace compared to the previous month as FX supply remained thin despite intermittent spot FX sales by the BOG. The local unit shed 3.7% m/m in June 2024 (-21.9% YTD) against the US Dollar, weighed down by persistent importers’ FX demand. In 3Q2024, the authorities expect a 2nd tranche DPO (USD 300mn) from the World Bank to augment the USD 360.0mn programme-related disbursement from the IMF and stem the depreciation tide. We think this would also require a tighter fiscal stance to restore GHS-USD supply imbalance.

    Fixed Income: The money market tightened modestly across pricing and demand conditions in June 2024 as a weaker appetite for T-bills sustained the steady uptick in Treasury yields. Our analysis revealed a shortening of tenor preference as demand for the 91-day ticked up (+24.5% m/m) while the bids for 182-day (-49.9% m/m) and 364-day tenors (-58.4% m/m) plummeted. Yields remained on the upturn for the second consecutive month as investors continue pricing in perceived fiscal risk to the outlook amidst the stiff public opposition to the tax measures in the Finance Bill 2024.
    The Kenyan Shilling defied the heightened fiscal risk, holding firm against the US Dollar in June 2024 (+0.5% m/m | +20.8% YTD) as forex reserve buffer was strengthened by USD 1.2bn inflows from the World Bank amidst attractive real returns on T-bills. Gross reserves stood at USD 7.8bn (4.1 months of import) as of 28th June 2024, exceeding the CBK’s statutory requirement of 4.0 months.  Despite the elevated fiscal and security risk, we view the high interest rates and the strong forex reserves as sufficient anchors for continued KES stability in the near-term.

    Fixed Income:
    Demand for Nigerian Treasury Bills (NTBs) softened in line with the lower target for June 2024 but remained more than enough to support the Treasury’s domestic funding requirement by 4.2x. The T-bill curve shifted downwards slightly amidst the robust Naira liquidity relative to the Treasury’s borrowing needs. In our view, this is an inherent risk to the effectiveness of monetary policy as yields on T-bills remain significantly lower than the policy rate of 26.25%. Our perception of the yield dynamics suggests that short-term yields have peaked despite recent hikes in the policy rate and will oscillate around current levels until positive real rates are restored.

    Currency: The Naira weakened marginally against the US Dollar across both the official and parallel markets in June 2024 while maintaining close alignment with the parallel market rate. The local unit traded within a tight range of 1,481 – 1,515 against the USD for most of June as FX demand waned, partly helped by relatively lower Naira injection from maturing futures contract. As expected, the World Bank approved the USD 2.25bn DPO in June 2024, comprising USD 1.5bn to support ongoing reforms and USD 750mn to support revenue efforts. The staggered inflows should boost FX reserves with a calming effect on the forex market ahead of the July 2024 MPC meeting.

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