Renewed inflow of foreign portfolio investment coupled with some measures by the Bank of Ghana such as the forex forward auctions should see the Cedi depreciate marginally by about 4 percent for all of 2021.
That’s according to an economist with Databank Courage Martey. After depreciating by more than 8 percent and 12 percent against the US dollar in 2018 and 2019 respectively, the Cedi showed a rare determination to shed only about 3.8 percent of its value against the US dollar last year.
The issuance of the US$3 billion Eurobond in February 2020, coupled with the implementation of effective measures by the Bank of Ghana such as its forex forward auctions, and other factors, ensured the local currency remained stable throughout 2020.
The trend of stability has continued into 2021, with the Cedi experiencing no depreciation throughout the first 5 weeks of this year. Courage Martey explains how foreign inflows are shoring up the stability of the local currency.
“The impressive performance of the Cedi so far this year is largely supported by the renewed inflow of foreign portfolio investment as foreign investors seek to exploit opportunities on our fixed income market or on our capital market because of our high interest rates but low currency depreciation that we’ve experienced in recent times. And that provides opportunities to scoop some dollar adjusted returns from our domestic market.”
Courage Martey also speaks of the role being played by the Central Bank to prevent any unchecked depreciation of the Cedi against the dollar this year.
“The Central Bank has also been on the market quite heavy especially on the forward market where they signal and have actually been allocating $50 million per bi-weekly auction on the forward market.”
“That has not only been helpful with adding to the liquidity on the market but also in guiding exchange rate expectations so that people now form an expectation of how the exchange rate will behave from the BoG’s auctions. That among others leaves us with our forecast of 3 % to 6 % by the end of this year. We however see us hitting 4 % at the end of 2021,” he added.