A series of positive developments – including a significant IMF disbursement, a deal struck with external commercial creditors and tapered corporate demand – have collectively helped to ease pressure on the cedi (GH¢).
Last week the GH¢ held steady against the US dollar (US$), buoyed by improved market sentiments as FX demand eased. This stability follows the IMF board’s approval and subsequent release of funds after the second review of its 36-month Extended Credit Facility (ECF).
Additionally, the Bank of Ghana’s (BoG) market intervention – selling about US$19million – played a crucial role in supporting the cedi.
This stabilisation comes after weeks of sustained pressure on the cedi, which culminated in a significant retail market depreciation of 22.45 percent against the US$ during first-half of the year.
The persistent corporate demand for foreign exchange had driven this downward trend. Last week, however, saw a turning point as market liquidity improved and demand slowed.
Databank Research noted: “The GH¢ has been on a rocky ride in the past weeks, grappling with relentless corporate demand and the resultant depreciation”.
They further highlighted BoG’s market intervention – which involved selling about US$19m following the IMF US$360mn tranche disbursement – that helped stabilise the cedi.
The IMF US$360million injection into the economy provided a much-needed boost to the country’s foreign reserves. This inflow was part of a larger financial package aimed at supporting economic recovery and structural reforms under the Extended Credit Facility.
The IMF’s endorsement and financial support have enhanced investor confidence and eased some of the immediate pressures on the cedi, contributing to its recent stability.
In addition to the IMF’s support, the deal with external commercial creditors has played a pivotal role in alleviating pressure on the cedi. By reaching an agreement with creditors, Ghana has been able to manage its debt more effectively; thereby reducing the strain on its foreign exchange reserves. This deal has been crucial in creating a more stable economic environment and improving market sentiments toward the cedi.
Despite this recent stabilisation against the US$, the cedi experienced minor declines against the euro (EUR) and the British pound (GBP) – shedding 0.30 percent and 0.25 percent week-on-week respectively.
The successful UK election, which alleviated market uncertainties surrounding the GBP, contributed to its relative strength against the cedi.
This fluctuation underscores the interconnected nature of global currency markets and impacts of external political events on the GH¢.
Looking ahead, the outlook for the local unit appears cautiously optimistic. Analysts, however, expect a degree of stability.
“We expect the cedi to remain stable this week as market liquidity improves and demand slows,” Databank added in a note.
With continued support from international financial institutions and strategic interventions by the BoG, the cedi is expected to remain stable in the near-term.
Market analysts believe that global economic conditions, fluctuations in commodity prices and the pace of economic recovery will all play a role in determining the cedi’s future trajectory.
Additionally, the BoG’s monetary policy decisions and further support from international financial institutions will be crucial in maintaining stability.
Continued vigilance and proactive measures will be essential to navigating complexities on the global and domestic economic scenes.
