Government�s 3-Years Borrowing Costs Hiked

Ghana�s three-year borrowing costs rose by nearly a percentage point at a bond auction last Thursday, after the Bank of Ghana hiked its policy rate two weeks ago to increase returns on cedi assets.

The yield on the three-year fixed-rate bond, the first this year, was 14.99 percent, up from 14 percent during a previous auction in October, 2011.

The sale is part of a move to restructure short-dated debt instruments, and proceeds will be used to support the government�s funding requirements for public projects, according to a prospectus published by the Central Bank.

The bank had offered GH�200 million of the bond, but received bids of GH�639 million from both domestic and offshore investors. The sale eventually settled at GH�219 million, the bank said.

The bond�s oversubscription is seen as evidence of investors retaining their confidence in the economy, despite looming elections that present risks to the consolidation of macroeconomic stability.

Investors were also probably comforted by the Central Bank�s recent policy decision, which showed the monetary authority was ready to act to preserve price stability.

Before the sale, it had raised its benchmark lending rate by a percentage point to 13.5 percent to curtail the shift to dollar assets, brought on by the weakness of the cedi against the greenback for the most part of this year.

The bank�s monetary-policy committee said the rate-hike was intended to �increase returns on cedi assets� and reclaim some of the ground lost by the cedi to the dollar. The local currency slipped by 6.5 percent against the US dollar in January, but stabilised in February, losing 1.2 percent in the month by Friday, February 24.

The hike also signalled the bank�s readiness to fight off incipient inflationary pressures, which were the result of the weak cedi and increases in domestic fuel prices by the government.

Consumer inflation picked up marginally to 8.7 percent in January, from 8.6 percent in December, with both food and non-food inflation rising slightly to 4.5 percent and 11.3 percent respectively.

Source: B&FT