Investment securities jump by P618m
The bank expects to see broad dollar strength
War likely to influence investors to hold on to the dollar
First National Bank Botswana (FNBB) has seen its investment securities rise by P618 million for its full year ended 30 June 2023 owing to a successful implementation of an overall yield optimisation strategy. The dollar has played a key role in this 12% jump as the bank increased allocation to instruments of enhanced yields within approved risk appetites. The dollar index had printed 106.1 as at Friday 6th October 2023.
The bank’s CFO Dr Mbako Mbo said at the results presentation that “we increased placements in some of the better-yielding instruments across the globe”. “The dollar in particular was giving a better yield across the globe,” Dr Mbo said explaining to a gathering that this is what accounted for “what you see as an increase in investments securities”.
A number of reasons can be attributed to the rise of the dollar. The first being the Fed’s aggressive rate hikes, which had made the dollar more attractive as some central banks of developed economies, remained behind the cycle. The US Fed paused its interest rate hiking cycle, leaving the Fed funds target band at 5.25%- 5.50% at its last meeting, citing the need to assess additional information and its implications for monetary policy.
According to the Bank of Botswana’s (BoB) Monetary Policy Report of August, the Fed noted that the US banking system was sound and resilient, however, tighter credit conditions for households and businesses are likely to weigh economic activity, employment and inflation. In assessing the appropriate stance of monetary policy, the FOMC stated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, as well as economic and financial developments. Monetary Policy Report indicates that the US real output expanded by an annualised 2.4% in the second quarter of 2023, from 2% in the first quarter of 2023. The expansion in output in the second quarter of 2023 was mainly because of the increases in consumer spending, state and local government spending, federal government spending, private inventory investment and non-residential fixed investment, which were partly offset by decreases in exports and residential fixed investment.
“We anticipate that macroeconomic data will, by the fourth quarter of 2023, be supportive of no further hikes this year in the US economy,” the FNBB treasury department said. Monetary Policy Report forecasts US output to grow by 1.8% in 2023, a decline from an estimated expansion of 2.1% in 2022, and moderate further to an expansion of 1% in 2024. The 2023 projection is 0.2 percentage points higher compared to the April 2023 forecast, on account of resilient consumption growth in the first quarter of 2023.
“The US dollar is expected to slightly depreciate against most major international currencies in the short term (Chart 4.11A and Chart 4.11B ) due to easing US inflation, which has raised expectations that the Fed may be nearing the end of its monetary policy tightening cycle,” the Monetary Policy Report said. “However, the global uncertainty emanating from the war between Russia and Ukraine and fears of a global recession, are likely to influence investors to hold the safe-haven currency, like the US dollar, thus affecting this forecast.”
In FNBB’s view, currency volatility is expected to continue in 2023, with a general bias toward further depreciation for many currencies, relative to the USD. “We expect to see broad dollar strength, associated with a tepid global environment, thus raising the costs of servicing dollar-based government debt.”
Comments