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Ghana cedi hopeful to rebound

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By Elorm Desewu

The country’s fiat currency, the cedi is hopefully to rebound as the central bank is prepared intervene on the forex market in a bid to further strengthen the cedi.

The cedi recently suffered some turbulence but has started to stabilize against it trading partners. It is currently trading between GHC4.9 and GHC5 on the interbank market.
The central bank is hopeful that the cedi would rebound in the next couple of months as it expects US1 billion from donor partners as budgetary support.

Grants disbursement from Development Partners is estimated at GH¢1.109 billion, equivalent to 0.3 percent of GDP and a nominal growth of 43.5 percent over the projected outturn of GH¢773.2 million in 2018.

Also, the government is likely to issue a US$3 billion Eurobond first quarter this year, for budget financing as well as to reduce borrowing cost. If it happens, it would support the country’s balance of payment, increase the reserve position and also strengthen the cedi.

In 2018, the central bank spent almost US$600million of the country’s reserves to support the cedi. According to the governor of the Bank of Ghana, Dr Ernest Addison, “we spent a little bit of reserve in order to stabilize the currency, but you also do not want to lose all your reserves in the process of trying to stabilize the currency.

“I think that was the judgment we made last year, because it is important to preserve all the gains achieved over the last two years. We spent two years bringing inflation down from over 15.4% to 11.8%, and then to 9.4%. If we allow the exchange rate to move too fast, you are going to negate the disinflation process, so that is why you have to lose some reserves to moderate the speed of depreciation of the currency.
However, at the same time, you also have to be mindful of the need to have adequate reserve buffers to withstand further shocks, and the central bank engaged in this kind of balancing act during the year 2018”.

“Every year we have new inflows, the inflows tend to be seasonal, as you know every third quarter, we see more inflows than outflows, so 2019 would not be different from what we have seen in the past years. The seasonality associated with foreign inflows still shows that we would be receiving more inflows than outflows between the third and the fourth quarters of the year” he said.  
Comparing the Cedi depreciation of 8.4% with developments from other emerging and frontier markets in 2018, the Cedi did relatively well. For example, Argentina where the peso recorded depreciation of over 50%; Turkey recorded a depreciation of over 28%, Russian rubble depreciated by 17%. Even getting closer to Africa, Zambia recorded a depreciation of 16.2%, South Africa 13.75%. So that’s the context in which one can judge the performance of the Cedi in 2018, that the 8.4% depreciation compared to what other frontier markets went through suggest that the Ghana cedi did relatively well, he explained.
The Gross International Reserves (GIR) declined from US$7.6 billion (4.3 months of import cover) at the end of December 2017 to US$7.0 billion (3.7 months of import cover) in 2018. 
 The Cedi cumulatively depreciated by 8.4 percent in 2018, compared with 4.9 percent in 2017. However, the Cedi depreciated more moderately against the pound and euro by 3.3 percent and 3.9 percent respectively, compared with 12.9 percent and 16.2 percent depreciation in 2017. In trade-weighted terms, the real effective exchange rate remained aligned with the underlying fundamentals.   
The central bank late last year tightened the forex rules for forex Bureaux operators in the country in a bid to stabilize the cedi.
As part of measures to enforce compliance by all licensed Forex Bureaux with the Forex Bureau Regulations issued in accordance with the Foreign Exchange Act, 2006 (Act 723), and the provisions of the Anti-Money Laundering Act, 2008 (Act 749) as amended, the Bank of Ghana announced all purchases and sales of forex must be captured electronically and receipted accordingly by licensed Forex Bureaux as well as customers providing a valid national identification or other valid personal ID such as Voter’s ID, Passport or Driver’s Licence when engaging in forex transactions with Forex Bureau.
 According to the statement from the BoG, all licensed Forex Bureaux should submit the required monthly returns electronically to the Bank of Ghana within five (5) working days after the end of the month, and also licensed Forex Bureaux should complete and submit a licence renewal questionnaire two (2) months before the expiration of the current licence.
 Additionally, all licensed Forex Bureaux should comply with the provisions of the Data Protection Act, 2012 (Act 843) and should register with the Data Protection Commission of the Ministry of Communication as a key requirement for annual licence renewal.

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