The recent depreciation of the world’s best performing currency a few months ago, the Ghana Cedi, has left many stakeholders upbeat despite heightened speculation.
Data from Bloomberg indicates that the Cedi had recorded a 13% depreciation in the third quarter so far, rating as the biggest global currency decline.
Analysts have linked the current trend to surge in demand for US dollars as traders rushed to take advantage of the stronger Cedi to stock up ahead of the festive seasons. At the same time, there are signs the Bank of Ghana has cut back its dollar supply to the market.
“As at last week, banks that filed dollar needs on behalf of their clients to the Bank of Ghana got about half of their requests,” Hamza Adam, head of market-risk management at UMB Bank Ltd said in an interview granted to Accra-based media. “This week the central bank is trying to meet all demand.”
The shift in the central bank’s intervention in a likely response to the International Monetary Fund (IMF) cautioning against excessive intervention to control the forex market; and the rush by traders to stock ahead of the festive seasons and other factors have erased some of the cedi’s 50% gain that was underpinned by a stronger gold bullion price.
Meanwhile, the central bank has assured stakeholders to be optimistic as the current trend is normal in the forex market.
“The cedi should be stable within a reasonable range,” the bank said in an emailed response to Bloomberg’s questions. “Our role at the Bank of Ghana is to ensure that fluctuations remain orderly, that they reflect fundamentals and that they do not undermine confidence in the broader economy.”
At the same time, other analysts have argued that external conditions have not changed much. In fact, they should still be in Ghana’s favour, since gold prices are at record highs, the U.S. dollar remains subdued, and the Federal Reserve is expected to cut interest rates soon—moves that normally support the cedi.
“The pressure is instead domestic”, Caleb Wuninti Ziblim, a Joy News Researcher alluded.
He emphasised that, “Remittances, which are a critical source of foreign exchange, appear to have slowed. The earlier strength of the cedi distorted the incentive.
“For instance, if someone abroad sent US$100 in April, that converted into about GH¢1,550, enough to buy roughly 150 cement blocks. By May, the same US$100 fetched just GH¢1,030, barely enough for 100 blocks. With their dollars suddenly buying fewer goods in Ghana, many senders simply held back, betting that the cedi would weaken again. If it did, their transfers would convert into more cedis.
“This pause in inflows removed a steady cushion of dollars from the market just as import demand was rising.”
Ghana’s import-dependent economy ships in everything from food to machinery. Demand for products from abroad tends to increase toward the end of the year as businesses stock up before the Christmas-holiday season.
While Ghana’s gross international reserves soared to a three-year high of US$11.1 billion by the end of June, the central bank won’t deploy sufficient funds to fully meet demand for foreign exchange.
Consequently, the Ghana National Chamber of Commerce and Industry (GNCCI) has called on the government to step up efforts to stabilise the exchange rate to enhance the standard of living and sustain economic growth.
According to the Chamber, a balanced approach is required to ensure a win-win situation for importers, exporters, and government revenue.
“The President once indicated that the target was to peg the exchange rate between GHc10 and GHc12 to the dollar. I would be concerned if it escalates beyond that,” Michael Kabutey, the National Treasurer of GNCCI, reflected while speaking at the Czech–Ghana Business Cooperation Seminar in Accra last week. “I want to believe the government is monitoring the situation and will act to prevent a return to the high levels we experienced in the past.
“There should be a win-win situation for importers, exporters, and government taxation. At the moment, the government is not generating much tax revenue from the ports, but striking a balance is necessary—and I am confident steps are being taken in that direction,” he said while stressing that exchange rate stability is crucial for business expansion and investor confidence.
