Keeping the cedi stable
The major challenge for the government this year would be
keeping the sharp depreciation of the Ghana cedi stable.
Every successive government has always depended largely
on the inflows from the cocoa syndicated loan to improve on their gross
international reserves. Currently, the country’s reserves have improved
reaching a record high of US$8.70 billion as at November 15, 2019, providing
cover for 4.2 months of imports. This compares with the end December 2018
position of US$7.02 billion equivalent to 3.6 months of import cover.
The foreign exchange market has continued to remain calm
since the sharp depreciations in the first quarter of the year. As at November
21, 2019, the Ghana cedi has depreciated by 10.4 percent against the US dollar
compared with an 8.1 percent depreciation for the corresponding period in 2018.
Against the British pound and euro, the Ghana cedi
cumulatively depreciated by 11.2 percent and 7.4 percent respectively, compared
with 2.6 percent and 2.8 percent over the corresponding period in 2018. In
trade-weighted terms, the real effective exchange rate continued to be broadly
aligned with the underlying fundamentals.
In the past, stability of the cedi depended largely on
exogenous factors such as commodity price shocks, uncertainty in the financial
markets, global financing conditions, energy shocks, crude oil imports, as well
as other fiscal pressures.
The central bank has s far received US$1 billion of the
cocoa syndicated loan. These should improve the Net Foreign Asset (NFA) of the
central bank, and the foreign reserves position to support the forex market.
The expected growth in the central bank’s NFA would have to be supported by
monetization of the foreign currency inflows. This is projected, together with
increased deposit mobilization, to instigate growth in Reserve Money and other
monetary aggregates and exert upward pressure on inflation beyond the
medium-term horizon.
The recently completed recapitalization exercise and the
resultant improvements in the financial soundness indicators, as well as
enhanced deposit mobilization which partly reflects innovations in the mobile
money space, should guarantee a resilient banking sector positioned to supply
credit without significant hikes in interest rates. Thus, the monetary sector
is expected to expand with developments in the real sector, propelled by growth
in both the NFA and the NDA.
We expect the central bank to put in effective measures
which would ensure investors and the business community of the stability of the
cedi going forward. We should always not depend on our traditional source of
shoring up our reserves. Let’s look at other options.
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