Market analysts have stated that investors appear to have remained numb to the implementation of the electronic transactions(E-Levy), as concerns over incessant consumer inflation and the prevailing liquidity squeeze seem to have more priority in their thoughts.
As recently announced, consumer inflation now stands at double the central bank’s medium-term target of 8% with a band of ±2%, as prices rallied at 23.6% year on year (y/y) in April 2022, far exceeding market expectations on the back of some perceived major inflation risks emanating from food inflation.
A liquidity squeeze on the money market coupled with interest rates – which are lower than the current inflation rate – continue to dampen investors’ appetite for government bills, as the Treasury’s auctions in April for 91-day, 182-day and 364-day bills missed its target by GHC2.24 billion.
Consequently, amid the heightened inflationary risks, yields on Treasury bills rallied at a much faster pace, as investors strongly re-priced their yield expectations higher to preserve the value of their investments.
Senior Analyst with Databank, an asset management company, Courage Kingsley Martey, in an interview with the B&FT noted that the fixed income market is more concerned about grappling with the negative news of rising inflation and tight liquidity – adding that these sentiments outweigh whatever positive fiscal news is coming from collection of the E-Levy.
“On the fixed income market, it appears the negative news is outweighing the positive fiscal news from the E-Levy. As a result, we continue to experience upward pressure on domestic yields despite implementation of the E-Levy – because of the higher inflation risk and tight cedi liquidity which are raising interest rates on the scarce capital you can find on the market.
“Essentially, it appears the E-levy implementation has passed under the radar due to the greater concerns around inflation and the prevailing liquidity squeeze,” Martey said.
Another market analyst, with Apakan Securities Limited – Edem Nickolas Kporku, said the market’s attention is on prevalent illiquidity and inflationary concerns.
“I think that’s where most, if not all, of the attention is,” he noted.
Kporku argued that a better gauge of the market’s reaction to the E-levy will be evident when the first collections are reported later in the year.
“That will give a sense of how much is coming in and how it’s affecting revenues in total,” he remarked.
Digital channels
On the levy’s impact on digital channels for investment transactions, analysts have said it is too early to judge as they propose the adoption of a ‘wait and see’ approach until the next round of official data is released.
This comes as the Securities and Exchange Commission (SEC), in a communique, announced that it is currently engaged with the Ministry of Finance to examine the possibility of exempting investment transactions from the E-levy regime.
“The Securities and Exchange Commission wishes to inform all capital market operators and the investing community that – following commencement of the E-Levy – the SEC is currently working with the Ministry of Finance regarding the potential exemption of investment transactions from the E-Levy,” the statement read in part.
The capital market regulator added that until such exemptions are granted, capital market operators must strictly adhere to guidelines issued by the GRA regarding implementation of the E-Levy.