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Cedi depreciation: gov’t tasked to resolve disparity in interbank and forex retail rates

An economist with an investment bank in the country has admonished government to work harder to improve upon the credibility of the country’s fiscal regime in order to attract more foreign exchange into the country.

Happenings on the currencies market is not a desirable activities as it could worsen the plight of the Ghanaian currency which has been ranked as second worst performing currency on the continent. Currently, the Dollar is selling at around GHC6.1 on the interbank foreign exchange market and selling around GHC6.91 at some forex bureaus.

Currency and financial analysts explain that the indication of a stable market is when the difference between the two markets is between 15 and 20 pesewas but in this case, it is currently more than 80 pesewas. In the past few years, the foreign exchange rates (especially for the US dollar provided by the Bank of Ghana) have been significantly different from the rates one would get on the forex exchange retail market. This phenomenon, according to analysts, the widening gap between the rates on the two markets is quite normal within the first quarter of a year, however, they are attributing developments in this quarter to high corporate demand for US dollars, and US Dollar demands associated with crude oil purchases among others.

“If the evidence of half-year review shows that we are able to contain the fiscals to match the revenue performance to the point where investors may be convinced we may start to win our credibility back and who knows the market might again be opened to us, even if not for Eurobond we will see foreign investors coming back to the local market which will be a good source of reference also on the local market”, an Economist with Databank, Courage Boti, said alluding to the fact that, the government will have to gain the confidence of investors in order to prevent such a situation in the second quarter.

“The dynamics are not too clear now, it all depends on government and how they execute the fiscal agenda going forward”.

The Ghana cedi has depreciated by 4.70% to the US dollar with only 45 days into the year, as pressure mounts on the local currency. This ranks it the second worst performing currency in Africa, among 15 top performing currencies.

Financial analysts are concerned that speculations relating to the government’s handling of its debt and its ability to raise the needed revenue to honour its obligations among others are leading to high demand for the United States Dollar on the retail market and widening the gap between the rates on the interbank market and the foreign exchange retail market.

Mr Boti attributed the cedi’s problem to upside risks to the economy including high debt and interest payments, inadequate revenue and rising expenditure. This has led to selling pressures by investors in Ghana’s international bonds and the lack of access to the international capital markets.

This moved the credit rating agencies, Moody’s and Fitch reviewed Ghana’s credit worthiness downwards within a space of a month. The revised credit rating has however complicated Ghana’s capacity to borrow from the international bond market, whilst paying higher interest or premium on existing bonds to investors.

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