News that the country’s central bank has a new boss, in the person of Dr Abdul-Nashiru Issahaku sets in motion permutations on the direction that financial markets would take.
This is, however, normal because the world over, heads of central banks have a great deal of influence as far as markets are concerned, suffice to say also that individuals are equally affected, greatly by such decisions.
Therefore, money market, foreign exchange market, as well as most of the other financial instruments under the supervision of the central bank would have some rearranging to do following the appointment of a new chief central banker.
The equity market too, even though its regulation is under a different regulatory provision is affected because listed companies are influenced by the economic decision of the time.
Hence, a reaction is always expected whenever a governor retires, a decision is made to terminate the appointment of a governor or to appoint a new one.
So, what was the reaction of the market, generally when the announcement of the new governor was made?
Well, frankly, there wasn’t any reaction of note when the announcement was made on April 4. Markets remained at their previous pattern of trading, with the stock market especially (often a strong indicator of the impact of the news to market performance), showing no effect at all.
This indifferent reaction by the market could be due to a number of factors. First, it could be because Dr Issahaku, a former second deputy governor of the Bank, has been part of the policy direction for some time, and, therefore, the market is not expecting anything drastic to happen.
Or, it could also be that the market expected his appointment, anyway, and therefore there was no surprise with the decision to warrant any movements - price movement or otherwise.
But, be that as it may, the market will still move. That movement, however, referred to in this particular case is what l would describe as the “speculator’s choice of comments”.
Financial market performance is what is played out on the street, of course, influenced by the policy direction set by the economic managers. Whereas markets do not always play out the way the economic managers hoped for them to move, most cases, there is always a link between policy and direction.
Odd events do happen, yes, and shake up markets severely, but they are so odd in nature that they don’t happen frequently, hence the need for strong policies to aid markets at all times.
Now, let me take you back to the article l wrote here in this column last year in which I referred to a story on the US market in 1991.
In 1991, the power of information on financial market movement was heavily tested when the then US Secretary of State, James Baker, only had to say one word to set in train a vast array of events.
This is what happened, according to available records.
That day, apparently, he had a meeting with the Iraqi ambassador to the United States in an effort to avert war, following US’s strong suspicion of Iraq’s intent to destabilise the Gulf region, but was not prepared [US] to use military force as the first option.
Later, making a statement to the waiting media, he began, “Regrettably……” and the financial market which had waited for hours to gauge investment decisions against the outcome of that meeting could not wait further after the opening statement of “regret”, with traders selling indiscriminately what they held, causing severe loss of value in both the bond and stock markets.
Another example is when in 1996, Alan Greenspan, Chairman of the US Federal Reserve Bank brought down share prices after they had climbed to record highs when he inserted into an otherwise boring speech the following question: “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?”
These are large chaotic systems influencing financial markets and therefore the economy, and, in other words, the power of information on financial markets.
The reference here is to bring in sharp focus how the speculator’s choice of comments and possible actions could impact on the financial market and therefore the performance of the economy as a whole.
The play-out, following the announcement of the new governor, if it should be a guide, means that some “speculators” are ready to set an agenda that could rather flatten the mood of financial markets instead of boosting it.
Member of Parliament (MP) for New Juaben South, Dr Mark Assibey-Yeboah has already acknowledged the new governor, with caution. Contributing to a review on the governor’s appointment on a local radio station, he poignantly declared that there was the need to “give Dr Issahaku the benefit of the doubt”, hoping he “does well“.
And his doubt is premised on what he described as Dr Issahaku’s political “affiliation” compromising the independence of the central bank.
“They [government officials] might call him to the Flagstaff House and promise him whatever and [then] he will go into agreement with them,” Dr Assibey-Yeboah said.
But facts, as we all know, are sacred, but you can comment as freely as you like, therefore, no one can be or should be gagged from expressing their views, of course, so long as those views do not create problems for others, especially situations of libel.
On this occasion, the comments by Dr Assibey-Yeboah were only an opinion expressed well, based on his own meaning and interpretation of the situation but the fact also remains that the new governor has held previous positions that give him the right credentials to run the central bank.
What the governor needs is support. If negative speculations and comments are kept low, the expected economic rebound would be experienced. And the opposite is also true; if we keep condemning his actions and of course, inactions, based on pure speculation, we would flatten people’s mood and the economy would suffer in consequence.
So, the agenda for the direction of the economy is also set by us, and not only by the policies introduced by the central bank. Speculation moves markets greatly too.