Ghana Fixed Income Weekly

The Week that was (March 12-16)

GoG upsizes debt issue amid robust investor demand: Last week, the Government of Ghana (GoG) took advantage of robust subscription to raise GHS916million worth of debt – nearly double issuance in the prior week and above target of GHS757million. Demand was robust for the 3M and 2-year papers with bid-cover ratio of 1.5x and 2.2x respectively though the 6M papers continued to suffer low patronage with bid-cover of 0.2x. However yields remained largely static across: 3M (13.34%), 6M (13.91%) and 2-year (16.5%). Though relative to Nigeria, Ghana’s fixed income market is not very liquid outside the primary market, increased offshore participation has fuelled a rise in trading liquidity which has pushed most bond yields to around 15% levels. At the weekly sales, the BoG sold GHS1.5billion (up from GHS36million) of its 56-day bills at rates (discount 18.7%, effective: 19.3%) largely unchanged from the prior week.

Figure 1: GHS Yield Curve

GHS yield curve

Source: BoG

Inflation rises due to adverse base effects in February : The Ghana Statistical Service (GSS) revealed that inflation climbed 20bps to 10.6% y/y in February largely due to adverse base effects as monthly inflation actually declined to 0.85% (January: 1.4%). The moderation in monthly CPI owed much to a slowdown in food inflation to 1.1% (January 2.1%) and non-food-non-farm inflation to 0.7% (January 1.1%) which suggests that underlying inflationary pressures are subdued. Following the cut in electricity tariffs and largely stable exchange rate pattern, the inflation is likely to hug the upper band of the BoG’s target band of 8-10% with forays into single digit levels over 2018. My forecast is for inflation to average 9.8% over 2018 with single digit readings over H2 2018.

Figure 1: Trends in Headline, Food and NFNF inflation

Ghana inflation

Source: GSS

The Week ahead (March 19-23)

In the week ahead, the GoG will seek to raise GHS782million for the 91-day and 182-day papers as well as try to raise GHS900million on the 3-year bond sale. For the 3-year bond, the IPT has been placed at 15.50% – 16.50% relative to 18.3% at the last sale. In addition, the GoG will announce book runners for the USD1-2bn Eurobond. However the announcement by BoG of the takeover of Unibank Ghana is likely to raise concerns about asset quality issues in the banking sector which will likely test the confidence of foreign investors in the Ghana story. Ideally the BoG could possibly have waited for Ghana to get its Eurobond show out of the way before making the announcement. That said, there is never a good time in drawing a line in the sand during a crisis so the decision was not likely an easy one. Depending on what plays out in currency market, the BoG might be reluctant to bite the obvious cherry and cut rates at next week’s MPC meeting where the market seems to be expecting a 100-150bps cut in the MPR. My guess is for something between 100bps looking at the pattern at its OMO sales. Will update on events next week.

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