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Business News of Wednesday, 24 June 2020

Source: Daily Guide Network

Banks’ lower net foreign assets contract in first quarter


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Lower Net Foreign Assets (NFA) of the country’s banking system slowed the growth of money supply at the end of the first quarter of this year.

According to the Bank of Ghana (BoG), which revealed this, broad money (i.e. money in circulation) grew by 13.5 percent in March 2020, down from 21.6 percent growth recorded for the corresponding period last year.

It said the lower growth of money in circulation was driven by the NFA of the banking system, which contracted by 8.2 percent compared with an expansion of 71.1 percent in March 2019.

“NFA therefore contributed -2.9 percent of the decline in growth in money in circulation compared with 17.9 percent in 2019.

“This decline was moderated by a significant increase in the contribution of Net Domestic Assets (NDA) from 3.7 percent in 2019 to 16.4 percent in 2020, driven by expansion in Net Claims on Government (NCG), which was moderated by reduction in credit to the private sector in March 2020 compared with the corresponding period in 2019,” it mentioned.

It continued that an analysis of the components of money in circulation over the period showed that the reduction in growth was largely as a result of year-on-year decreases in growth in demand and foreign currency deposits in 2020 compared with 2019.

Reserve Money (RM)

In April 2020, it stated that reserve money grew by 21.7 percent year-on-year, up from the 7.5 percent growth during the corresponding period a year ago.

The sources of change in reserve money showed that the uptick in the growth was strongly influenced by significant growth in the NFA of the BoG.

“This contrasts with the same period in 2019 where NFA was relatively experiencing outflows. The components of BoG’s NDA were underpinned by strong increase in NCG and a reduction in OMO sterilization. On the other hand, this was significantly moderated by changes in other items’ net.”

Money Market

The report said interest rates on the money market generally trended downwards in line with the easing on monetary policy in March 2020. The weighted average interbank rate decreased from 15.21 percent in April 2019 to 13.38 percent in April 2020, while the 91-day Treasury bill declined from 14.17 percent to 13.57 respectively during the period under review.

“Similarly, rates of the 182-day, 364-day, one-year and three-year fixed note all declined, while the two-year and 10-year bond rates increased between April 2019 and April 2020. Rates on the six-year, seven-year and 15-year instruments, however, remained unchanged during the period. During the period, a 20-year bond was issued in August 2019 at a rate of 20.20 percent,” the report highlighted.

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