The Bank of Ghana is putting the activities of forex bureau operators in its monitoring radar for possible sanctions and license withdrawal. Suleiman Mustapha asks why
The Bank of Ghana has threatened to impose severe sanctions including license withdrawal of forex bureau operators who accept deposits and do large foreign exchange transactions.
Central Bank Governor and Chairman of the Monetary Policy Committee (MPC) of the Bank of Ghana, Mr Kwesi Amissah-Arthur has on the sidelines of an MPC news conference in Accra hinted some forex bureau operators are now accepting deposits and doing large foreign exchange transactions.
The bank is therefore setting out measures to monitor the activities of forex bureau operators in a bid to stem the rising spate of dollarization of the national economy.
“Yes we are worried that some of the forex bureau operators now accept deposits like the normal banks and transact large volumes of foreign exchange business”.
“They are part of the problem and we will soon be rolling out tough measures to stem their illegal activities”, the Governor said.
The Bank of Ghana is even more worried of the growing trend of dollarization, which he partly blamed on the activities of forex bureau operators.
According to the Governor, the central bank will continuously be reviewing the books and constantly monitor the activities of forex bureau operators for possible sanction in breach of the country’s foreign exchange rules.
“It is our view that this will contribute to restoring confidence in the cedi” he said, adding that “the Bank will issue the necessary notices to this effect in due course”.
“They are supposed to do spot transaction of the small foreign currency, which does not require having to go to the commercial banks to exchange”.
“But what we have observed is that some of them are accepting deposits and moving large volumes of foreign exchange around”, he added.
The Bank of Ghana has mopped up GH¢1.2 billion in excess liquidity from the system in a bid to stem the exchange rate pressure and reduce demand for dollars.
In a move to halt the growing trend of ‘dollarization’ and stabilize the cedi, the Central Bank is also reviewing the currency composition of the reserve requirements of commercial banks.
Dollarization is characterized by a tendency for businesses to sell their goods and services in foreign currencies, particularly, dollars.
The service providers quote exchange rates that are significantly off-market. The fringe exchange rates trickle down into the market and become benchmark rates, unduly influencing market rates.
The situation has fuelled price increases in the country and led the Bank of Ghana to tighten monetary policy, alter bank reserve requirements and reintroduce several bonds.
“The committee notes that the measures have begun to take effect. Increase in the policy rate have led to upward adjustments in rates of money markets instruments and improve the attractiveness of cedi assets compared to foreign currency assets”, Mr Amissah-Arthur said.
According to the Governor, though the Bank of Ghana was not considering abolishing the operation of foreign exchange accounts by citizens, it would move to restore the pre-eminence of the cedi in domestic transactions, which required strict adherence to the provisions of the Foreign Exchange Act 2006 (Act 723) and the accompanying regulations.
The Governor was worried about the large dollar deposits in commercial bank accounts, which he said had significantly contributed to the exchange rate pressure.
At the moment, the share of foreign currency deposits to total deposits in the banking system has increased from 27.9 per cent in April 2010 to 28.2 per cent in April 2011 and further to 31.8 per cent in April this year.
This means that some commercial banks have more foreign currency deposits than domestic currency in their total deposit.
The Bank of Ghana feared that those banks could be importing large volumes of foreign currency to service the needs of their clients.
During the first five months of the year, the cedi depreciated cumulatively by 15.1 per cent against the US dollar, compared to 1.9 per cent depreciation in the same period of 2011.
In recent weeks however, the pace of depreciation of the cedi has moderated as a result of the measures introduced to restore stability.
The real effective exchange rate depreciated by 6.8 per cent in January – April 2012, compared with a real appreciation of 5.9 per cent in the same period of 2011.
But Governor Amissah-Arthur assured Ghanaians that the end of the cedi fall was in sight
Forex: EUR/USD back below 1.2700 - FXStreet.com
WORLD FOREX: Euro Shakes Off Gloomy News Ahead Of Fed Decision - NASDAQ
--Euro positive despite gloomy German ZEW numbers and "prohibitively" expensive Spanish T-bill auction
--UK inflation eases, boosting stimulus hopes
--Hungarian forint strengthens on IMF news
By Eva Szalay
The euro crept higher after a bruising start to the week as traders braced for the slim chance of further monetary easing from the U.S. Federal Reserve on Wednesday, with the currency stable despite a raft of negative news, including an expensive Spanish T-bill auction and a disappointing German business sentiment reading.
Some traders also pointed to unsubstantiated chatter of the European Central Bank buying under-fire Spanish government bonds as a contributing factor to the common currency's rise to $1.2620 against the dollar.
The gains came after a session of erratic moves and disheartening headlines that showed German economic expectations souring at the fastest rate for more than a decade. The widely-watched German ZEW economic expectations index fell to - 16.9 in June from May's unrevised 10.8.
"This was the fastest decline in sentiment since the height of the Russian/Long-Term Capital Management crisis in October 1998," Simon Derrick, a currency strategist at the Bank of New York Mellon, wrote in a note to clients.
The currency had earlier dropped to near the day's low of $1.2568 after the German constitutional court ruled that the German government hadn't informed parliament sufficiently about the configuration of the European Stability Mechanism. Traders sold the currency aggressively fearing the decision would throw more hurdles in the way of policymakers struggling to solve the region's debt crisis. But the currency staged a quick bounce as the realisation grew that the decision is just a reiteration of an earlier ruling.
Meanwhile, Spain auctioned 3.039 billion euros ($3.89 billion) of 12-month and 18-month papers, with what Marc Ostwald, an interest rate strategist at Monument Securities, described as "prohibitively" high costs. Yields on the 12- month offering almost doubled to 5.074% from 2.985% at the previous sale in May. The average yield on the 18-month bills came in at 5.107%, up from 3.302%.
The sharp rise in yields came after news that the second part of a forthcoming audit of Spanish banks would be delayed until September. The banking audit will be closely watched for determining how much help the country's banking sector could potentially need.
"Spain needs not only an ESM package to recapitalize its banks, it also needs an outright bailout package," Mr. Ostwald said.
However, some market-watchers said that large euro losses are unlikely for now, as the Fed announces its monetary policy stance Wednesday, with a small chance of further easing.
"Investors are likely to think twice about adding to (negative) positions in the euro before a potential Fed easing announcement," analysts at Danske Bank said in a note to clients.
The pound saw hefty declines after inflation undershot expectations and slowed to its lowest level in more than two years, boosting expectations that the central bank would engage in more monetary easing. The consumer price index rose 2.8% on the year in May against consensus views of a 3% rise. Sterling hit the day's low at $1.5616.
The Hungarian forint showed strong gains against the euro after news that Hungary is ready to move on to official talks with the International Monetary Fund and the European Commission.
At 1054 GMT the euro was trading at $1.2613 compared with $1.2577, according to EBS via CQG. The currency was at Y99.51 from Y99.47.
Sterling traded at $1.5666 compared with $1.5664.
The dollar was at Y78.81 from Y79.12 and at CHF0.9523 from CHF0.9551,
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 81.788 from 81.959.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF Spot 1016 GMT 1.2625 78.94 1.5664 0.9513 3 Day Trend Bearish Bearish Bullish Range Weekly Trend Range Range Range Bullish 200 day ma 1.3183 79.62 1.5823 0.9199 3rd Resistance 1.2748 79.51 1.5785 0.9650 2nd Resistance 1.2702 79.31 1.5742 0.9595 1st Resistance 1.2669 79.14 1.5695 0.9565 Pivot* 1.2615 79.03 1.5681 0.9513 1st Support 1.2568 78.78 1.5615 0.9503 2nd Support 1.2557 78.61 1.5599 0.9475 3rd Support 1.2518 78.18 1.5511 0.9420 Forex spot: AUD/USD Spot 1016 GMT 1.0152 3 Day Trend Bullish Weekly Trend Bullish 200 day ma 1.0247 3rd Resistance 1.0274 2nd Resistance 1.0247 1st Resistance 1.0225 Pivot* 1.0107 1st Support 1.0104 2nd Support 1.0057 3rd Support 1.0011
Write to Eva Szalay at eva.szalay@dowjones.com
(END) Dow Jones Newswires 06-19-120745ET Copyright (c) 2012 Dow Jones & Company, Inc.
Forex buy sinks in May - People's Daily Online
China recorded its lowest net purchase of foreign currency in May since June 2002, suggesting capital outflow and tightening liquidity in the market, experts told the Global Times Tuesday.
The nation's banks purchased a net 23.4 billion yuan ($3.68 billion) of foreign exchange last month, turning around from a net sale of 60.6 billion yuan in April, according to data released by the People's Bank of China (PBC) Tuesday. The banking system's foreign exchange purchase totaled 25.61 trillion yuan by the end of May, higher than the 25.59 trillion yuan purchase recorded for April, according to the central bank.
The foreign exchange purchase increased month-on-month in May mainly because of growth in the country's trade surplus and foreign direct investment (FDI) during the same month, Zhou Hao, a market analyst from ANZ China, told the Global Times.
Last month, China recorded a $18.7 billion, or 44 percent, gain in its trade surplus from April, according to the General Administration of Customs. Meanwhile, FDI added $9.23 billion during the same period, according to the Ministry of Commerce.
However, such a small net foreign exchange purchase indicates that China still faces capital flight and diminished monetary supply, said Zhou.
In May 2011, the country's net foreign exchange buy stood at 376.4 billion yuan, according to the PBC, about 15 times higher than the amount in May of 2012.
The market already feels that liquidity has been soaked up as the capital supply - which generally consists of foreign exchange purchases, matured central bank bills and repurchase agreements - remains low, while demand has surged with an increase in bond issuances due to the recent interest rate cut, said Zhou.
With the situation expected to remain the same in the months ahead, it is very probable that China will make another cut in the reserve requirement ratio (RRR) during the third quarter to ease liquidity and strengthen its weak economy, according to Sheng Hongqing, chief economist from China Everbright Bank.
China is likely to record small net foreign exchange purchases, or even net sales, in the near future as the trade surplus narrows and more export companies become unwilling to change their foreign currencies into the yuan that is expected to depreciate, said Sheng.
"In the future, a net purchase of foreign exchange can no longer be the main source to supplement money supply in the interbank market," Sheng said. "RRR cuts and reverse repurchase agreements will be a must to ease liquidity in the market."
FOREX-Euro dips, losses limited before Fed decision - Reuters
* Dollar index hovers near 1-month low
* Fed may extend Operation Twist, QE3 seen unlikely
* Dollar may rise if Fed refrains from QE3
SINGAPORE, June 20 (Reuters) - The euro eased versus the dollar but clung to much of the previous day's gains on Wednesday, with investors focusing on whether the U.S. Federal Reserve will adopt further monetary stimulus to support the economy's recovery.
The euro also gained some support from signs that Greek parties may be close to forming a coalition government, and as Spanish government bonds gained a bit of respite on Tuesday after a recent sell-off.
For now, however, the Fed's policy decision due later on Wednesday is taking centre stage.
"I think the overwhelming factor is some expectation of Fed stimulus today," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
"Looking at the overnight moves, it's not just the euro that has risen," he said. "We've had a bunch of currencies taking advantage of the softness of the dollar."
The euro dipped 0.1 percent to $1.2671, giving back a bit of ground after climbing about 0.9 percent on Tuesday.
Resistance for the euro lies at $1.2748, a one-month high struck on Monday after Greek voters backed a pro-bailout party in weekend elections and fears of a disorderly Greek exit from the euro zone receded.
Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, cautioned against reading too much into the previous day's rise in the euro.
"It's hard for the euro to rise for reasons other than short-covering," Okagawa said, adding that the euro will probably trade in a range roughly between $1.23 to $1.28 over the next month.
With Spain's 10-year government bond yields having hit euro-era highs this week, fanning speculation that Spain may need a full-blown bailout, market players expect any bounce in the euro to be limited.
The dollar hovered near a one-month low against a basket of currencies ahead of the Fed's decision on Wednesday.
The dollar index stood at 81.459 , not far from a one-month low of 81.186 hit on Tuesday.
While many market players doubt that the Fed will go so far as to launch another round of quantitative easing, a policy that entails the expansion of its balance sheet via bond purchases, there might still be some disappointment if the Fed holds off from such stimulus, market players say.
A more likely scenario is for the Fed to extend "Operation Twist", a programme aimed at pushing down long-term borrowing costs by selling short-term securities to buy longer-term ones. The scheme is now due to end in June.
If all the Fed does is to extend "Operation Twist", the dollar could head higher, said Credit Agricole's Kotecha.
"There is some, perhaps in our view, misplaced hopes for QE3 today. We believe the Fed will probably extend its Operation Twist, but think QE3 seems unlikely at this stage," said Credit Agricole's Kotecha.
"So that could provoke a bit of disappointment if that is the case," he said.
The dollar eased 0.1 percent versus the yen to 78.88 yen . There was talk of stop-loss offers below 78.50 yen, while stop-loss bids were said to be lurking at levels above 79.50 yen.
MONEY MARKETS-Banks' borrowing at ECB rises as Spain stress grows - Reuters UK
* Banks increase borrowing at ECB's seven-day tender
* Rise in demand reflects growing Spanish stress
* Growing ECB rate cut speculation seen weighing on Euribor
LONDON, June 19 (Reuters) - Bank borrowing from the European Central Bank rose on Tuesday as turmoil in the euro zone government bond markets pushed more banks to take up the ECB's regular offering of seven-day loans.
Demand for the funds, currently used largely by banks who can no longer borrow money affordably elsewhere, rose by 36 billion euros to 167 billion euros. The number of banks bidding at the auction rose to 101 from 94.
"The rise in the number of bidders points to signs of new stress. I would say Spanish names are behind that," said Matteo Regesta, strategist at BNP Paribas in London.
Spain has become the focus of the euro zone debt crisis over the last week after a bank rescue plan worth up to 100 billion euros failed to win market confidence and propelled 10-year bond yields above the 7 percent danger level.
Spanish banks have suffered huge losses on souring portfolios of property loans and most have been frozen out of the interbank market where banks borrow money to lend on at a profit. Data released on Monday showed Spanish banks' bad loans hit their highest since April 1994.
The increase in seven-day borrowing may herald rising market stress but is unlikely to have a major impact on money market rates, which have been pushed to rock-bottom levels by the huge amount of excess liquidity in the system.
Banks' total borrowing from the ECB is 777 billion euros more than their estimated needs, according to Reuters data , with most locked into long-term loans offered by the ECB in December and February to calm a previous bout of stress.
That excess of liquidity, along with growing speculation that the ECB may cut interest rates to boost the region's flagging economy, saw the benchmark interbank Euribor rate fall for a third successive session, to 0.657 percent.
The equivalent Libor rate, set by a smaller panel of banks based in London, also fell to a new record low at 0.56557 percent.
The prospect of cuts to the ECB's deposit and refinancing rates, boosted by recent comments from ECB policymakers, was the main factor driving rates lower, analysts said.
Barclays Capital analysts revised their ECB rate outlook to forecast a 50 basis point cut in the refinancing rate, to 0.5 percent, and a fall in the deposit rate to zero from 0.25 percent.
"In a scenario of the refi rate at 50 (basis points) and the deposit facility at zero, we would expect EONIA to fix at 10-15 bps in the reserve period, with three-month Euribor likely to decline to 40-45 bps," the bank said in a note.
The Eonia overnight rate fixed at 0.334 percent on Monday.
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