Cedi spirals ‘out of control’

Governor, Bank of Ghana
Dr. Ernest Addison
  • 7 percent depreciation so far
  • 7 percent depreciation in 2017

Contrary to measure being put in place by the central bank, the performance of the local currency continues to worsen by the day with the year-to-date depreciation of 5.7 percent against the dollar beating the 4.7 percent recorded for the entire 2017.

The central bank has insisted it is pushing enough forex unto the market among other raft of measures but it appears the pressure on the local currency has more than doubled especially over the past two weeks which has seen more than two percent depreciation against the dollar.

Put in perspective, data from the central bank’s interbank market point out to a year-to-date depreciation of 2.4 percent as at July 3. As at July 17, the year-to-date depreciation has worsened to 5.7 percent indicating that in two weeks the cedi depreciated by as much as it did in the first six months of the year.

Same period last year (July 17), the local currency had recorded a 3.5 percent depreciation comparing favourably to the 3.8 percent recorded in 2016.

The performance of the currency on the forex market proper somehow reflects the interbank market performance with Bloomberg that monitors forex trade at selected key banks in the country also indicating a 5.7 percent ytd depreciation.

Much as the cedi has had its own troubles against the greenback, recent global developments like a hike in the US federal reserve’s interest rate has led to a much stronger dollar which has seen the local currency struggling.

In addition to the cedi having to deal with the external pressures, market analysts say the domestic market reaction to the MTN IPO launched in May — which said the GHS3.48 billion to be raised will be used to settle shareholders who mostly reside outside the country — is compounding demand for dollars.

Steve Opata, Director, Financial Markets Department at the central bank weeks ago confirmed the market reaction to the MTN IPO revealing that the central bank had engaged MTN to mitigate whatever impact that may arise.

“Assurance from MTN to treasury managers in banks about no immediate plans to externalize [repatriate] these payments should mute that aspect of market sentiments. The BoG is engaging the management of MTN Ghana to ensure that any FX outflows arising from this transaction is done in a phased and orderly manner,” Mr. Opata said.

More liquidity, other measures

The Director, Financial Markets Department of the central bank said the bank over the months has made sure there is enough liquidity to cater for any shortfall that will lead to the cedi to come under the pressure against the dollar.

Mr. Opata who spoke to the B&FT early last month revealed that the central bank is increasing its forex supply to the market. The recent Eurobond, he said, has provided additional forex to the central bank which could be called upon to help the forex market.

He maintained that the central bank is monitoring keenly the current happenings both externally and domestically and would not hesitate to use its monetary policy tool to bring the desired change to the local market.

“While these global and domestic developments do not yet pose a threat to inflation in Ghana in the near term, the BoG is monitoring the situation to take appropriate policy actions as required,” he added.

Despite these assurances made a month ago, the cedi continues to reach new lows meaning that the central bank will have to dig deeper to stem the slide which has now become synonymous to the local currency.

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