The Bank of Ghana’s (BoG) Foreign Exchange (FX) forward rates auction result shows that it has been oversubscribed by more than 100% by forex licensed dealing banks.

The auction got bids totalling US$177.5 million, against a target of US$75 million. The BoG, however, moved to accept its target of US$75 million from the total bids.

At the auction on 19^th October 2021, out of 135 bids submitted by the authorised banks, only 49 bids representing less than 50% of the total bids were accepted by the Bank of Ghana.

Unlike the previous auction on 5^th October 2021, which did not record any invalid bids, the recently organized FX auction recorded invalid bids amounting to US$1 million.

The results from the FX auction revealed that the 7-day tenor had the highest number of subscriptions, with a total of 67 bids and its corresponding value of US$99.25 million, whereas the 45-day tenor recoded least bids of 5 with corresponding value of US$4.5 million.

Furthermore, the 15-day and 30-day tenor received bids of 40 and 23 respectively, with corresponding values of US$53.5 million and US$20.25 million respectively. However, the 60-day and 75-day tenor recorded no auction bids, just like the case of previous FX auction.

As part of the 49 total bids accepted by the BOG, the 7-day tenor had the highest accepted bids of 26 amounting to US$44.5 million. However, the 60-day and 75-day tenors had no accepted bids.

Additionally, the 15-day and 30-day tenor had accepted bids of 12 and 9 respectively, in values of US$21.25 million and US$7.75 million respectively. The 45-day tenor recorded 2 accepted auction bids with value of US$1.5 million

Significance of FX auction

According to the International Monetary Fund (IMF), the “interventions of central banks in the foreign exchange market has been, and continues to be, an important feature of the conduct of the economic policy in the present system of widespread floating” foreign exchange rates.

As part of the essence of the conduct of the FX auction by the central bank, the IMF disclosed that it will help control exchange rate fluctuations, to alter money supply and also to finance government imports and exports.

However, this decision went in favour of the allocation methodology for FX auctions by the BOG which indicates that, “the auction amount to be accepted should be close to the announced volume, probable at variance of not more than ±10 percent of auction target”.

As part of the reasons why the Bank of Ghana introduced the Forex Forward Auction initiative in October 2019 was to create an aura of certainty for individuals and institution who have future transaction tied to foreign currencies.

Also, the FX forward rate auction is tailored to relieve the foreign exchange market of insurmountable pressures, and to help stabilize the cedi over time.

Conduct of FX forward rate auction

The FX forward rate auction is “conducted by authorised officials of the Bank of Ghana. Prior to the auction, the proposed date and time will be published on the website of BOG, and on the BOG page on the Reuters Terminal”, BOG revealed.

The publishing of the date and time is to help notify and remind participants of the upcoming auction. Only Authorized Licensed Foreign Exchange dealing banks are permitted to participate in the bidding process, the BOG disclosed

Following the publication of the auction date and time, authorized banks that wishes to participate, are expected by the BOG to tend in their bids to a designated approved email of the BOG. Once bids have been submitted, alterations are not permitted.

Additionally, the banks are permitted to submit a maximum of three (3) bids per each tenor in the auction, “quoting their desired amount at a freely determined exchange rate as per the quotation convention provided”.

Also, “the minimum bid volume of USD 500,000 in multiples of USD 250,000 is expected to be quoted in figures”.

The maximum size of a single bid shall not exceed ten percent (10%) of the announced auction target, the BOG disclosed.

The cumulative volume of all bids from any single bank shall not exceed twenty percent (20%) of the announced target for the auction.

“Successful bids are notified, and the Cedi equivalent of the FX demanded are debited from the commercial banks’ operational accounts with a guarantee to settle the FX component at an agreed date in line with standard settlement rules.”