BoG to tighten policy rate further to support the cedi
By
Elorm Desewu
The
central bank is likely to tighten the policy rate further to maintain cedi
stability on the forex market.
According
to the Bank of Ghana the cedi may therefore call for continued policy
tightness, sustained inflows, and continued mopping up of excess liquidity to
dampen foreign exchange demand pressures.
“We
expect the Cedi to benefit from continued stabilizing global conditions, strong
macro fundamentals and the large foreign exchange inflows at the tail end of
the first quarter of 2019. However, risks such as exposure to non-resident
portfolio investors, a slowing global economy, and government policies after
the exit from the IMF programme require close monitoring” BoG has ssaid.
The
cedi came under pressure between April and September, mainly from external
developments, but eased towards the end of the year, reflecting stabilizing
global conditions, improved inflows, stronger macro fundamentals and observed
decline in forex demand pressures.
During
the first quarter of 2019, the Cedi again came under pressure, reflecting FX
supply constraints and seasonal demand pressures. The interplay of these
factors resulted in a year-to-date depreciation of the Cedi by 8.0 percent at
the peak of the crisis on March 19, 2019 compared with 0.02 percent
depreciation in the same period of last year.
By
the end of March 2018, however, a correction had taken place and the Cedi
depreciation had reversed to 5.2 percent. The moderation was on the back of
reversal in investor sentiments on the outlook, the successful completion of
the IMF-ECF programme and positive news associated with the US$3.0 billion
Eurobond inflows, which has improved the country’s reserve buffers.
On a year-to-date basis, the Cedi depreciated
by 6.79 percent in nominal trade weighted terms and 7.39 percent in nominal
Forex transactions weighted terms compared to 2.48 percent depreciation in
trade weighted terms and 0.35 percent in forex transactions weighted terms over
the same period in 2017.
In
real terms, the cedi depreciated by 1.7 , 0.2 , and 3.7 percent, respectively,
against the Dollar, Euro, and the Pound Sterling on a year-to-date basis. On
year-to-date basis, the Cedi depreciated by 0.71 percent in real trade weighted
terms and by 1.59 percent in real forex transaction weighted terms in January
2019.
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