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Banks happy…as the cedi falls

By Elorm Desewu

Some commercial banks in the country are happy in the wake of the speed depreciation of the country’s fait currency, the cedi, as it increases their net foreign assets in cedi terms.

Like virtually everyone else, the banks publicly clamour for exchange rate stability but in reality they prefer at least some degree of cedi depreciation because it increases the value of their net foreign assets in cedi terms. 

This by itself, increases a bank’s balance sheet size; but sometimes they go a step further and realize the profits derivable from the change in value by selling those foreign assets and thus earning foreign exchange translation gains.

The Ghana cedi has depreciated by 4.70% to the US dollar within 45 days of 2022. It is the second worst performing currency in Africa, among 15 top performing currencies.

It is presently trading at GHC7.15 to one US dollar on the forex market.

The conditions that triggered the persistent depreciation of the cedi during the latter part of last year is expected to  persist till the end of the first half of 2022, Databank Research has projected.

The local currency, it said, remains vulnerable to foreign portfolio outflows amidst the elevated import demand.

The heightened uncertainty around Ghana’s fiscal outlook worsened the local currency’s woes in the latter part of 2021.

“We expect these conditions to persist in first-half of 2022 in addition to corporate import demand as Ghana’s economy rebounds”, it said.

According to the Monetary Policy Committee, (MPC), Ghana’s Gross International Reserves as at December 2021 stood at US$9.7 billion equivalent to 4.4 months of import cover. This compares with a reserve position of US$8.6 billion (4.0 months of import cover) at the end of 2020. 

The Gross Reserves have since increased to US$9.9 billion as at 28th January 2022. The strong reserve position provided some buffers for the local currency in 2021. Cumulatively, while the Ghana Cedi depreciated by 4.1 percent and 3.1 percent against the US Dollar and Pound Sterling, respectively in 2021, the Ghana Cedi 5 appreciated by 3.5 percent against the Euro. In the same period of 2020, the Ghana Cedi recorded depreciations of 3.9 percent, 7.1 percent, and 12.1 percent against the US Dollar, the Pound Sterling, and the Euro, respectively.

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