The Bank of Ghana (BOG) recently held Foreign Exchange (FX) forward rates auction has been oversubscribed by forex licensed dealing banks, against BOG’s auction target of US$75 million.
Although the total amount of bids reaching the BOG for the auction summed up to US$165.5 million, the BOG remained disciplined to accept US$75 million worth of bids.
At the auction on 7th September 2021, out of 119 bids submitted by the authorised banks, only 57 bids representing about 47.9% of the total bids were accepted by the Bank of Ghana.
Unlike the previous auction held on 10th August 2021, which recorded 7.71% invalid bids of the total bids, the recently organized auction did not record any submitted invalid bids.
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 wish 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”.
“Forward FX contracts exist in the following tenors: 7, 15, 30, 45, 60 and 75-day in addition to foreign currency swaps.
“At the operational level, bids are accepted from agents through their respective commercial banks across the available tenors in accordance with market rules published by Bank of Ghana”.Bank of Ghana
Auction fund allocation
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”, the central Bank disclosed.
Meanwhile, it has not been made public why the BOG decided to accept bids within its target.
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”.
Furthermore, this move by the BOG will help to ease the pressure on spot market activities with the banks, hence aiding to stabilize the cedi in the long run. And will also help businesses to plan and hedge for their business transactions.