Governor of the Bank of Ghana, Dr. Ernest Addison, has calmed nerves over the current rapid depreciation of the cedi, saying, the bank is implementing interventions that will stabilise the local currency against its major trading currencies in the shortest possible time.
His comments come on the back of concerns over the cedi’s sharp loss of value within the past two months, as daily interbank FX rates (day’s weighted average) published by the Bank of Ghana, shows that, as of march 15, 2022, the cedi has plunged 17.1 percent against the US dollar, selling at GH¢7.03 to a dollar, making it the worst performance of the currency in the last seven years.
The situation is even worse when it is analysed from the forex market, as banks and forex bureaus are trading the cedi at GH¢7.50 to a dollar, at least, – a situation some market watchers are projecting may hit GH¢8 cedis by end of the year.
But despite the poor performance of the cedi, and what analysts are projecting, Dr. Addison said, the local currency will soon start appreciating given the interventions from government and the central bank.
“As you are aware, the cedi came under pressure in the early part of February. And the reasons include the fact that we have lost access to the capital market and therefore we were not going to issue a bond this year which has negative implications for the availability of foreign exchange. The government has announced its intentions to raise UD$2 billion from some syndicated arrangements with banks. If that goes through, that should help improve the supply of foreign exchange to the economy as a whole and should impact positively on the cedi.
In terms of what the Bank of Ghana has been doing, we have the fortnightly foreign exchange auctions where we make foreign exchange available to the system and in the last few weeks, we have been making special allocations to the [Oil Marketing Companies] OMCs and the energy companies as well as the cement producing companies. I can tell you that, as of last week, we have completely cleared the pipeline demand for foreign exchange from these OMCs,” he said at an engagement with the media in Accra after announcing the policy rate.
He further stated that the central bank has put in place measures to increase forex supply on the market as part of short-term measures to address the situation, adding that, medium to long term initiatives are also in place to stem the local currency.
“We have made foreign exchange available to the market broadly and we think all of that should help in terms of mitigating the depreciation of the cedi. These are all short-term immediate measures that we are taking to address the matter.
We have also announced an increase in our policy rate and that action in itself should make our domestic market more attractive and improve the incentive in cedi denominated assets.
We also want to look at the retention agreements with the oil drilling companies etc. These are medium to longer term measures to improve the foreign exchange earning capacity of the economy as whole. So we are quite confident that these measures will stabilise the cedi.
The governor added that the depreciation of the cedi has now hits its highest point, hence, speculators will not succeed, as it will soon start appreciating.
“We think that the exchange rate has overshot its long-run level and when that happens, it can only appreciate. So those that are speculating on the cedi should be aware that the central bank thinks the cedi has over shot its medium-term level and we think that there will be appreciation in the next few quarters; so we they are not going to win by speculating,” he said.