Cedi to start recording improvement, stability against US dollar from April 1st – Analyst

The Ghana cedi is expected to start recording improvement and stability against the US dollar from 1st April 2022, following recent actions by the Bank of Ghana coupled with upcoming fiscal measures by the Finance Minister, Ken Ofori-Atta

According to Senior Economic and Currency Analyst at Databank Research, Courage Martey, the aggressive and decisive actions by the Bank of Ghana and the expected measures to be announced by the Finance Minister will revive the strength of the local currency.

In actual fact, checks by Joy Business at some forex bureaus and the banks indicate a marginal appreciation of the cedi to the dollar in today 23rd March, 2022 trading. That signals good times ahead.

The local currency is now going for ¢7.84 to the dollar on the retail market, compared to about ¢8.06 yesterday, 22nd March, 2022.

However, the Bank of Ghana pegs the cedi to the dollar at ¢7.112 (mid-rate).

The situation is also similar to that of the British pound and euro.

Speaking to Joy Business, Senior Economic Analyst at Databank Research, Courage Martey said though its early days to predict the fortunes of the cedi, the market will definitely react to the policy decisions by the Central Bank and the Finance Ministry.

 “In the interim, we’ll say its early days yet. In addition to that, the cedi also has a history about its performance and so we will also want to look forward to what the Minister of Finance [Ken Ofori-Atta] will be delivering as far as the fiscal decisions are concerned. From that point and the weeks ahead, we’ll start to analyse the foreign exchange market to see how the cedi will respond to some of these announcements”

“But on the face of it, this appeared to be good measures; aggressive and decisive measures from the Central Bank which we expect to be backed by the fiscal measures, so that going forward, the market – at least sentiments – should start to improve. Once it’s starts to improve, we should start to see it reflecting in the pricing behavior of participants on the market”, he added.

The increase in the policy rate by 2.5 percentage points to 17% is expected to entice investors to acquire cedi denominated instruments because of the attractive yields.

Though cost of borrowing will go up, increasing cost of living and doing business, the Central Bank will the interim mop up excess liquidity in order to control inflation and reduce interest in the dollar denominated assets.

“When Cedi liquidity finally tightens, what you might see is that, those hoarding dollars in their accounts will not want to go and borrow expensive cedi. They will rather have to sell their dollar holdings to buy cedis and that could increase the supply of dollars on the market and slow down the pace of depreciation”, Mr. Martey stated.

“But for now it is its early days”, he added.

Beyond the policy rate, the Bank of Ghana announced measures which will take effective from April 1st, 2022,

The measures in relation to universal banks include an increase in the Cash Reserve Ratio to 12%; the Capital Conservation Buffer reset to the pre-pandemic level of 3%, making the Capital Adequacy Ratio a total of 13% and the provisioning rate for loans in the Other Loans Exceptionally Mentioned (OLEM) category reset to the pre-pandemic level of 10%.

Source: JoyNews