The Bank of Ghana has proposed a total target amount of US$ 775 million for the multiple-price foreign exchange forward auctions to be held for the year 2021.
According to the auction calendar for 2021, the proposed date for the forex sales are likely to start from Tuesday, 12thJanuary. Also, bids are invited as per the prescribed format to “purchase/sell [United States dollar] against [Ghana cedi], separately on each auction date”.
The reason for the forex forward auctions is to determine the allocation of a given amount of foreign exchange through a bidding process to control the inflow and outflow of the foreign currency in circulation in the Ghanaian economy.
In simple terms a foreign exchange forward transaction is an agreement to purchase one currency against selling another currency at a fixed price for delivery on an agree date in the future hedging against the fluctuations of the currency market which poses a threat to the Ghana cedi.
Detailing the amount of foreign exchange the Central Bank intends to trade per quarter out of the US$ 775 million, the Bank of Ghana has indicated that initially US$ 300 million will be auctioned for first quarter followed by another US$ 175 million which will be traded in quarter two.
When we enter the second half of the year, from July to September which represents the third quarter, the Bank of Ghana plans to auction forex totaling US$150 million. For the last quarter of the year 2021, an additional US$150 million of foreign exchange will be auctioned.
All authorized foreign exchange dealers have been cautioned by the Central Bank that bids are to be received between the hours of 9:30 am until 10:30 am on the date that are slated for the forex auctions to take place.
Subsequently, the review of the bids follows suit from 10:30 am in the morning up to 1:00 pm in the afternoon on the same day when the auctions are submitted.
Finally, the announcement of the results of the bid is to take place at 3pm.
Analysts have also affirmed that governments borrowing on the capital markets and the conduct of the bi-weekly forward forex auction by the Central Bank are boosters to the prospects of a potential stable Ghanaian currency.
An Economist with Databank, Courage Martey has urged the Bank of Ghana to continue with its forward forex auctions because they “help participants on the exchange market to lock in exchange rates without going to rush for the physical cash and that has helped to reduce speculative and panic transactions on the spot market and so continuing these forward auctions will deepen forex trade on the market and that should help reduce panic on the spot market,” translating into a likely stable cedi this year.
The forex auctions are to be conducted “in accordance with the Foreign Exchange Auction Guidelines issued on the 23rdSeptember 2019” and the provisions of the Code of Conduct for the Interbank Foreign Exchange market in Ghana, the Bank of Ghana alerted.
