Ease pressure on cedi by diversifying – Standard Bank

Analysts at Standard Bank, parent company of Stanbic Bank Ghana, have advised government to diversify its export basket order to decrease the pressure on the local currency.

In its April 2019 edition of the African Local Markets Monthly (ALMM) Report, Standard Bank noted that reliance on gold, oil and cocoa has not helped the cedi because the three commodities hedge for each other.

“In assessing the medium-term outlook for the GH¢, we are of the view that the BoG can quell the near-term upside pressure. We take note of the country’s diversified export basket – made up of gold, oil and cocoa – which account for close to 80 percent of total exports. Arguably, gold and oil are hedges for each other as circumstances that could lead to a sharp increase in gold prices would probably trigger a sharp fall in oil prices, and vice versa,” the report said.

The report further noted that “… there are significant investments in these sectors that could increase production on a multi-year basis. Meanwhile, import demand would be subdued sufficiently that the goods trade account is in surplus”.

The report also expects the central bank to continue supporting the cedi following a boost in financial reserves from the sale of Eurobonds. This, the ALMM said, has the potential of easing the anxieties which have plagued the local market in the past couple of months.

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According to the report: “US$/GH¢ volatility is likely to ebb in coming months. Over the coming month, we see the pair remaining near current levels. It is possible that foreign investors may remain somewhat agitated in the near-term. But with financial reserves having been boosted by the issuance of Eurobonds, the BOG will likely not relent from supplying finance to the market. Ultimately, this has a chance of quelling the disquiet in the market”.

Commenting on the report, Head of Africa Research at Standard Bank, Phumelele Mbiyo, said the expected intervention from the BoG could stop the current fall of the cedi as a result to good policy decisions from the central bank.

Mr. Mbiyo said: “While we admit that there are policy mistakes that could undermine the GH¢ at some point in future, those mistakes do not appear to be committed right now. Hence, we find it hard to believe that a US$/GH¢ upside would persist if the BoG intervenes”.

The African Local Markets Monthly is a monthly report issued by the Standard Bank Group, parent company of Stanbic Bank Ghana, that focuses on the economic and financial outlook of African countries. The report also reviews current economic situations and makes short- to medium-term predictions about the economies of African countries.

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