By Elorm Desewu
The governor of the Bank of Ghana, Dr Ernest Addison has described the Economist Intelligent Unit, (EIU) forecast on the Ghana cedi as a “daring forecast”.
The EIU’s recent report on Ghana projected that the Cedi would depreciate to GHC6.5 to the dollar by 2023
But the governor disagrees, saying “I do not think that these projections are plausible, especially projecting exchange rate three years ahead, that is a very daring forecast and you find that such projections more often than not, do not turn out to be correct, because the horizon is too far out”.
He said “the central bank’s objective is to keep the Cedi as stable as we can and also keep inflation on target, this is what we are trying to do, and in trying to achieve our inflation target, exchange rate stability is very key”.
From January to May, 2019, the Ghana Cedi cumulatively depreciated by 5.8 percent, compared with 0.2 percent for the corresponding period of 2018.
He explained that “if we had had a slower depreciation of three or four percent, it would have made our job, in terms of keeping inflation below our target easier. Now, we have to put in a little bit of effort to keep inflation within the target bands, and as you have observed, we have seen headline inflation creeping up over the last three months from 9.0 to 9.2, then to 9.3 and now 9.5 percent.
In addition, we are saying that these slight upticks reflect the exchange rate issues that we had over the past three months. However, we do not think that this has led to dislodging of inflation expectations. As you know, within our inflation targeting frameworks, expectations on inflation matter, so for us, inflation expectations from the recent surveys we conducted remained well anchored and therefore the recent upturn in inflation will possibly ease.
Otherwise, headline inflation would get out of the target band. So, that is where we are, we are still very much focused on delivering the inflation target for the year and in our view, such long-term projections of exchange rates are far-fetched, and so far as we are focused on achieving our inflation target, we do not think we will be anywhere near the EIU’s projections.
In the year to May 23, 2019, the Ghana Cedi cumulatively depreciated by 5.8 percent, compared with 0.2 percent for the corresponding period of 2018. However, against the other major currencies, the depreciation was more moderate. Against the British pound and Euro, the Ghana cedi cumulatively depreciated by 4.7 percent and 3.3 percent respectively, compared with 1.4 percent and 2.6 percent appreciation respectively over the same corresponding periods. In trade-weighted terms, the real effective exchange rate remained broadly aligned with the underlying fundamentals.