Editorial: Cedi’s continued volatility raising concern

Gov’t revenue target still low, can be better – IEA

Heightened corporate demand and persistent foreign exchange (FX) pressure has seen the local currency plummet against major trading currencies, reflecting mounting concerns over inflationary pressure and liquidity dynamics.

This is despite the over US$106.10million injection into the FX market through the Bank of Ghana’s (BoG) spot market operations, and bulk oil distribution companies (BDCs).

Corporate demand for foreign currency further exacerbated the cedi’s depreciation. Despite efforts by the central bank to stabilise the currency, the cedi continues to falter against major trading currencies.

Following significant boosts with forex inflows from both the International Monetary Fund (IMF) and the World Bank, the market as a whole expected a firmer cedi. Last month, the World Bank approved a US$300million Development Policy Operation for Ghana, marking the initial step in a three-part series.

Also, the disbursement of the second tranche of US$600million following the first review of the US$3 billion, 3-year extended credit facility (ECF) arrangement with the IMF.

This FX injection was expected to result in a substantial FX inflow of about US$1.15billion into the economy, further fortifying the stability of the cedi in the foreseeable future.

Investors and market participants alike are closely monitoring the evolving situation, with concerns mounting over the sustainability of the cedi’s recent downward trend.

However, analysts anticipate a continuation of the prevailing narrative, with the cedi poised to face ongoing challenges amid persisting FX demand and inflationary pressures.

Stakeholders and corporate Ghana are calling for further prudent monetary policies and enhanced measures to address the underlying factors contributing to the cedi’s vulnerability on the international stage.

The stability in the foreign exchange market hinged on improved inflows from the IMF ECF first tranche, the domestic gold purchase programme, remittances and FX purchases from mining and oil companies, amid monetary policy tightening.

These were further supported by the release of COCOBOD loan facility in December 2023.

In his penultimate State of the Nation Address on Tuesday, President Nana Addo Dankwa Akufo-Addo indicated that the government’s gold-for-oil policy has significantly reduced pressure on forex.

Vice President Mahamudu Bawumia announced the policy in 2022, in an attempt to tackle Ghana’s dwindling foreign currency reserves coupled with the demand for dollars by oil importers, which was weakening the local cedi and increasing living costs.

Currently, the Ghana cedi is inching closely to the GH₵13.00 to a US dollar mark, increasing the anxiety of businesses.

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