Barely two months into the Nana Addo Dankwa Akufo-Addo-led administration, a failing local currency means the authorities would have to dig deep into their policy armory to deal with a familiar old nemesis which tormented the previous administration.
The cedi, which lost 9.6 percent of its value against the dollar last year, has come under intense pressure in recent weeks, in what has become a perennial pressure exerted on the local currency by importers as well as multinationals repatriating scarce forex to meet external obligations.
The U. S. Federal Reserve decision to hike its benchmark interest rate to 0.75 percent in December last year, has also led to some investors in Ghana cashing out and going to invest in the US market seen as less risky.
South Africa-based RMB Global Markets Research also attributed the cedi’s decline to an announcement made by government of a previous undisclosed spending incurred by the former government.
In the beginning of the year, a dollar was trading at GH¢4.2077 on interbank market. As at the close of trading last week, a dollar now costs GH¢4.4399, meaning the cedi had lost 5.2 percent of its value (year-to-date) more than double the 2.1 percent recorded within the same period last year.
Although last year’s 9.6 percent depreciation compares favorably to the 15.7 percent recorded in 2015, the cedi ended the year poorly after it had held its own against the US dollar till December 2016.
From the beginning of last year to November 29, the cedi had a year-to-date depreciated by 4.7 percent. The last month of the year saw the cedi worsen its performance, depreciating further to 9.6 percent by year’s end.
The Bank of Ghana, as part of moves to increase supply of the greenback, earlier this year auctioned US$69million on the market a move described by Head of Research & Strategy at Ideal Capital Partners, Peter Nii Odoi Charway, as unsustainable.
According to Managing Director of Ecobank Capital, Kisseih Antonio, the BoG can do little to stabilise the cedi if the government is not prudent in helping deal with the current account imbalances.
“The BoG cannot wave a magic wand to stabilise the currency when the problem we have is a structural one, not a monetary one. We all seem to point fingers at the BoG when the cedi is not doing well but the government, and not the BoG, is in charge of fiscal policy and matters. The BOG can only help in the short-term by intervening in the FX market to mitigate any depreciation.”
Indeed, the increasing pace of the cedi’s fall will be a major source of worry to the new government which promised to alleviate economic hardships some of which were caused by a weaker cedi which made imports expensive in an economy which relies heavily on imported goods.
Despite January’s inflation falling to 13.3 percent, the lowest in more than three years, the cedi’s slide would most likely than not have pass through effect on inflation and this would pose another headache for managers of the economy who had promised to “stabilise the currency exchange rate for the long-term through prudent and disciplined macroeconomic management, an increase in domestic production, and an increase in exports.”
Finance Minister, Ken Ofori-Atta, will on Thursday present government’s budget statement and given the cedi’s performance, the budget will have to contain measures that would offer some respite to both businesses and consumers from the biting effects of the local currency’s depreciation.
Some of the measures promised by the Akufo-Addo-led government to keep the local legal tender stable include: “Reinforcement of section 40 of the Bank of Ghana Act, 2002 (Act 612) by keeping relatively stable, the ratio between the currency in circulation and foreign exchange cover.”
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