Despite a very stable performance all year long, the cedi has returned to its perennial fits of weakness as demand of the greenback by corporates and traders begins to rise ahead of the Christmas festivities.
The cedi, over the past month, has struggled to keep up with the dollar with its fragility worsening by the day. According to the central bank’s interbank forex rates, the local currency depreciated 3.9 percent between January and October 31.
The relative year-long stability begun to taper off in November, where the local currency depreciated by about one percent as traders and corporates increase demand for the dollar.
According to South Africa-based RMB Research, the cedi’s performance at this time of the year is not particularly surprising as previous years have not been any different.
The research arm of Rand Merchant Bank, in its report for the week ending November 30, said: “While a five percent [year-to-date depreciation] move is fairly sizeable for the cedi, it is not entirely unprecedented as demand for dollars typically increases this time of the year.”
While the depreciation around this time of the year may be precedented, many market watchers have wondered why the central bank has not moved in to increase its auction of dollars on the market on the back of proceeds from the US$1.3 billion cocoa syndicated loan.
“Despite a recent boost in reserves due to the Cocobod syndicated loan, the Bank of Ghana has not intervened by selling dollars as it would typically do. This indicates that the bank, much like us, believes that the currency will retreat once this bout of demand dissipates,” RMB Research said.
“Supporting our view is the fact that the currency at these levels – USD/GHS4.5 – is relatively within fair-value ranges, given that the unit is currently trading in line with its 5-year historic real effective exchange-rate levels.”
The performance of the cedi against other major trading currencies like the Euro and the Pound Sterling is not any better. Whilst its year-to-date depreciation against the dollar is about 4.6 percent, the rate of depreciation against the pound sterling and Euro has been worse.
The BoG’s data shows that the cedi has depreciated by 12.8 percent against Great Britain’s pound sterling while it has recorded more than a 16 percent loss of value against the Euro since the turn of the year.
Speaking at last week’s Monetary Policy Committee press conference, Governor of the central bank, Dr. Ernest Addison, maintained that the cedi’s performance over the last month is not a reflection of the underlying fundamentals, implying that the volatility is temporary.