IN BRIEF

• GHANA
  Fixed Income: Interbank Cedi liquidity remained strong in September 2023 with GHS 29.8bn held by commercial banks in 56-day BOG Bills as of month-end (vs GHS 28.3bn as of end-August 2023). The buoyant liquidity supported investor demand for T-bills with total bids (GHS 13.1bn) and uptake (GHS 12.9bn) exceeding the gross target for the month by 8.9% and 7.2%, respectively. Yields edged up across the T-bills and the BOG bills. The weighted yield for 56-day BOG bill gained 80bps m/m to 30.0% while the 91-day T-bill climbed 148bps m/m to 28.5%. Given the drop in inflation to 40.1% y/y in August 2023 and our expectation of further declines in the months ahead, we expect yields to peak along the 30.0% – 33.0% area in 4Q2023 with positive real yield restored by 1Q2024.

  Currency: The Ghanaian Cedi weakened steadily in September 2023, pressured by a rise in FX demand from manufacturing and energy sector firms as we await inflows from COCOBOD loan syndication (USD 800mn). Consequently, the Cedi lost 1.5% m/m (-12.5% YTD) against the USD on the retail FX market.

• KENYA
  Fixed Income: The auction of Kenyan Treasury bills attracted lower bids in September 2023 compared to the preceding month (-17.8% m/m), mainly due to muted appetite for the 91-day and the 182-day bills, despite sustained rise in yields. The 91-day and the 182-day yields rose to 14.79% (+105bps m/m) and 14.94% (+145bps m/m), respectively.  Despite the sustained decline in inflation to within the Central Bank target of 2.5% – 7.5% (September 2023: 6.8%), we believe investors are pricing in fiscal risk and potential pass-through of recent FX pressures to future inflation.

  Currency: The Kenyan Shilling weakened further in September 2023, posting a 1.8% m/m depreciation against the US Dollar (-16.7% YTD) as FX supply remains tight amidst subdued FX inflows and attractively high global interest rates. We foresee continued pressure on the Shilling in the month ahead as the authorities’ plan to repay the Jun-24 (USD 2.0bn) Eurobond with forex reserves appeared to spook investors.

• NIGERIA
  Fixed Income: Money market liquidity eased in September 2023 but remained robust enough to outweigh the Treasury bill offers for the month. Investors submitted NGN 1.5trn in total bids (-37.2% m/m) against the gross target and uptake of NGN 355.4bn (-18.7% m/m). Yields remained unattractively low against the backdrop of high and rising inflation (August 2023: 25.8% y/y) and FX uncertainty. The 91-day stop rate gained 131bps m/m to 6.5% as the Treasury allotted at the maximum bid yield. However, the 182-day and the 364-day stop rates respectively declined by 100bps m/m and 260bps m/m to 7.0% and 11.4%. At these yields for T-bills, and average LCY bond yields of 14.6%, Nigerian local fixed income securities do not fully compensate for inflation and FX risks.

  Currency: The Naira’s woes deepened in September 2023 amidst the persistent forex shortage, backlog of FX demand, rising inflation, and uncompensated interest rate regime. As the Naira remains exposed to the backlog of FX demand without a credible clearance plan by the authorities, Nigeria’s finance minister, Olawale Edun, estimated the size of the unmet demand at USD 6.8bn. The Central Bank expects to clear the backlog through different structures within the FX market, with banks which control 75% of the market anticipated to play a crucial role. In our view, the near-term outlook on the Naira remains negative amidst the raft of measures required to boost FX supply. However, the appointment of new CBN Governor, Dr Olayemi Cardoso, should revive the authorities’ commitment to FX market reforms.