Adnan Adams Mohammed
International accounting firm, Deloitte, is confident that the current appreciation of the local currency, Cedi, is due to Bank of Ghana Monetary Policy Committee’s to stay the policy rate.
The firm believes that, the unchanged policy rate will hold the rebound for a while and in the long run push inflation downwards after stabilizing prices on the market.
The MPC cited a slightly elevated inflation despite a rebound in the stability of the Ghana cedi and a stable domestic economy as the rationale behind the unchanged policy rate of 27.0%. Deloitte is optimistic the policy rate will support economic growth and prevent inflation from rising.
“The implication of the unchanged policy rate would also boost business and consumer confidence”, Deloitte indicated in its economic brief centered on the Monetary Policy Rate (MPR) in Ghana and Nigeria, released last week.
As of Thursday, December 5, the Cedi was buying at 14. 91 to a Dollar and selling at 14.93, per the Bank of Ghana rate as against the rate a day before on Wednesday, December 4, when it was buying at 15.11 to a dollar and selling at 15.12.
With the Pound, it buys at 18.95 and sells at 18.97. With the Euro, it buys 15.69 and sells at 15.71.
These rates represent some marginal gains made by the local currency against the major trading ones.
Meanwhile, analysts have wondered whether or not the Cedi’s resurgence will be sustainable beyond the general elections.
The Director of Research at the Institute of Economic Affairs (IEA), Dr John Kwakye, noted that the recent cedi appreciation is due to deliberate intervention by the Bank of Ghana (BoG) ahead of the election.
“It’s got nothing to do with improved economic fundamentals,” he said.
He expresses the view that “The real test will come after the election.”
A month to the election, Dr Kwakye notes that it has sharply appreciated to below 15 due to BoG intervention.
“But why now? And what is going to happen after the election? Or is it a matter of seek ‘ye’ first election victory and all other things will be yours?”
In response to the doubts raised by Dr Kwakye and other analysts, the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) has said, the cedi’s rebound observed recently should continue with the dissipation of election-related uncertainties and the improved foreign exchange buffers accumulated by the central bank.
“A combination of economic uncertainty brought about by the upcoming elections and the high demand for foreign exchange has led to an exchange rate path that is slightly deviated from the fundamentals”, the Committee said last week. “With strong macroeconomic policy implementation and improved foreign exchange availability, the economy should observe a realignment of the trajectory of the exchange rate with the fundamentals.”
The MP further explained that, while global economic conditions remain favourable, the strength of the US economy coupled with a strong United States dollar and the possibility of a resurgence in global energy and food prices arising from trade protectionism, geopolitical conflicts, and extreme weather conditions will have to be monitored closely for policy responses to ensure stability in the economy.
It noted that domestic macroeconomic conditions remain stable and the International Monetary Fund External Credit Facility (IMF-ECF) Programme implementation remains on track.
Data observed through October 2024 indicated broad stability in the macroeconomic indicators. Growth outturn so far has been strong, and leading indicators of economic activity is projecting stronger growth in the second half of the year, business and consumer confidence is slowly turning around, core inflation remains broadly stable, the financial sector inflation expectati ons remain broadly anchored, reserve build-up has been sufficient to provide confidence, and the currency is recording some appreciation, it said.
It added that the third review assessment of the IMF on the economy and on programme implementation also reflected a positive assessment and led to a Staff level Agreement.
“Indications are that the IMF Board will meet in December to assess programme implementation thus far and assess forward-looking prospects of the economy. Sussessful completion of the assessment will likely trigger the release of additional US$360 million in December 2024. This should provide more impetus to stability,” the committee said.
“Commercial banks have accumulated enough capital buffers to withstand the effects of the external debt restructuring. The latest macro-prudential risk assessment showed that the impact from the Eurobond restructuring would be minimal, given the preemptive provisioning made by banks to account for potential impairments. Banks are therefore expected to continue to remain stable and support economic growth going forward.
“Inflation projections show a slightly elevated profile driven by high and unstable food prices, pass-through of previous exchange rate pressures, fuel prices and utility tariff adjustments. The price increases in food items have been steep in the course and together with a fast-paced depreciating currency earlier on in the year have altered the inflation trajectory and stalled the disinflation process. At the time of the last MPC meeting, average inflation forecast a year ahead which stood at 19.0 percent has increased slightly to 20.1 percent at this forecast round. The horizon for inflation to get back within the target band of 6 – 10 percent has slightly shifted forward to Q42025 from the original forecast period of Q32025.
“In the near-term, strengthening of the currency will augur well for future price developments. Under the circumstances, the Monetary Policy Committee decided to keep the policy rate unchanged at 27 per cent,” the statement said.
On the outlook, Deloitte in its report said, the Ghanaian economy will pick up, driven by rising business confidence and economic activities.
It furthered that the strengthening of the local currency will help stabilise prices further.
In Nigeria, the MPC raised the MPR to 27.50% for the 6th time since January 2024, amidst rising inflation.
The concerns were higher fuel prices impacting the cost of production and distribution costs, persistent exchange rate pressure, reflecting high forex demand and elevated core inflation.
Deloitte warned that there will be an implication of further squeeze in disposable income, reduced money supply but tighter credit access and increased cost of borrowing and loan defaults.
Apparently, the accounting firm is upbeat about the resilience of the banking system despite exogenous and endogenous macroeconomic headwinds
