Adnan Adams Mohammed
Financial Analyst, IC Securities, has revised its earlier forecast for the year end exchange rate for a US dollar to Ghana cedi.
It had revised upwards the exchange rate to GH¢15.91 to US$1.0 against an earlier forecast of GH¢13.2 to US$1.0. The revision was necessary to reflect the current macroeconomic performance trend.
IC Security emphasis that, the Bank of Ghana’s unexpected policy rate cut in January 2024, triggered an ‘anticipated strong selling pressure on the cedi’.
Meanwhile, the firm delayed revising their forecast until mid-year, expecting certain financial inflows and the final tranche of the cocoa syndicated loan for the 2023/24 season. However, these inflows fell short, and the market was flooded with cedis.
The Bank of Ghana’s adjustment to the Cash Reserve Requirement (CRR) had limited impact on reducing local currency liquidity, as banks converted their maturing securities into CRR positions. Additionally, the clearance of contractor arrears contributed to the increased supply of cedis in the forex market, putting further pressure on the currency.
IC Securities noted that approximately $2.3 billion is expected to flow into the country in the latter part of 2024. These inflows are seen as credible and likely to occur within the indicative timelines.
While the cedi might experience short-term appreciation due to these inflows, domestic investors are expected to continue hedging their bets as the December elections approach, potentially neutralising any gains.
Currently, the cedi is trading at around GH¢15.00 to the dollar in forex bureaus
, influenced more by the anticipation of World Bank inflows than by actual foreign exchange sales, as the Bank of Ghana maintains constrained interventions and focuses on building reserves.
The Cedi has taken a staggering nosedive since 2017, recording about 246 percent lost in value against the US dollar.
All attempts to manipulate supply and demand artificially to support the Cedi/US$ exchange rate keep failing; it rather end up exacerbating the problem. These attempts have even cause the Cedi to depreciate further. It’s clear that we need more effective measures to stabilize the currency, and we need them now.
A statement signed by the president of GUTA (the Ghana Union of Traders Association), Dr Joseph Obeng, said, “… the Cedi’s depreciation has created a big mess for the business community …”. The union has described the current situation as a crisis. But it’s not just businesses that are suffering.
The cost of living is skyrocketing, and people’s spending power is plummeting. Every day, Ghanaians feel the pinch, having to make do with less money in their pockets. Less money in the pocket means less spending on everything from food to children’s school fees. This increase in the cost of living has been caused by the high rate of Cedi depreciation, high inflation, high electricity and water tariffs, high interest rates, and high taxes.
But according to the Bank of Ghana (BoG), “.the BoG remains fully committed to providing stability in the exchange rate for the Cedi. The Bank has enough foreign exchange reserves to support the market, and economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs”.
The Bank also announced the establishment of a task force to oversee all foreign exchange bureaus and ensure they comply with regulatory standards. This task force’s primary goal is to address illegal operators’ activities in the foreign exchange market and enhance market transparency.
Contrary to what the BoG labels as speculative behavior, individuals and businesses are actually making rational decisions. Investing in foreign currencies, gold, or other precious metals in high-inflation environments is a prudent strategy to safeguard wealth, preserve purchasing power, and diversify investments. The allegations about the activities of ‘illegal’ forex traders are a diversion. It’s illogical to blame small-time currency traders for the Cedi’s depreciation.
The BoG and the Government of Ghana’s (GoG’s) consistent failure to deliver on their policy promises has undermined public trust, forcing even humble traders like the local Koko seller to scramble for scarce dollars. As the Cedi’s value plummets, the prices of everyday essentials like ‘pure water’ skyrocket, making life even harder for ordinary Ghanaians. The BoG speaks, but its words ring hollow. Despite its policy tweaks and assurances, the Cedi’s woes continue.
There is also information in the public domain, fueling Cedi speculation, which the BoG is not addressing. The harsh truth is that the GoG’s borrowing spree has blown up in its face, shutting it out of international capital markets. The same markets that once propped up the Cedi with dollar injections now slam their doors shut, leaving the currency to plummet.
In their recent statement, the BoG admits that business sentiment is low, inflation is high, and disinflation is not working. They also admit to missing all targets but claim the targets they were reporting are broadly aligned with targets agreed upon under the IMF programme.
