The government’s announcement to inject two billion dollars into the economy to strengthen the Ghana cedi against the other currencies, especially the dollar, appears to be having the intended impact on the performance of the cedi.
Recent reports from Bloomberg show that the cedi depreciated by 18.21 percent in the first quarter of this year.
But analysts have confirmed that the cedi has gained about eight percent appreciation on the trading market in the last few weeks.
The cedi’s battle against the US dollar has always been one-sided – with the local currency’s struggles well documented.
It is almost certain that any news report on the cedi has always focused on how much of its value it has lost against the US dollar, occasionally interspersed with bouts of positive performance.
The year 2022 has recorded some of the worst performances from the local currency, depreciating by 18.2 percent against the US dollar, according to Bloomberg.
The continuous hike in fuel prices on the global markets, the Russian-Ukraine war, and the high rate of inflation are some of the factors that account for this situation.
Data from the Bank of Ghana shows that the first quarter of 2021 saw a bit of stability in the cedi’s performance on the interbank market against key major trading currencies, with the local currency experiencing a depreciation of about one percent throughout the first 3 months of the year.
However, the same period this year has seen a continuous depreciation of the cedi.
The local currency started the year selling at about GH¢6 per dollar, but ended the month of March selling at GH¢7.12 per dollar, representing a depreciation of about 17 percent in the first three months of 2022.
Although the cedi is currently selling at GH¢7.11 on the interbank market, stakeholders say this is an appreciation of the currency in the last few weeks.
They attribute this to the fact that people have been speculating about a stable currency following the government’s announcement to pump an amount of two billion dollars into the economy to check the cedi.
Figures on the retail market, however, provide stronger evidence for the appreciation of the cedi.
Before the Finance Minister’s announcement, the cedi was seeing about 30 percent depreciation against the dollar, selling at GH¢8.50 compared to GH¢6.50 in the early parts of this year.
However, the local currency is now selling at GH¢7.50, translating to an 11 percent gain in the last few weeks.
President of the Ghana Union of Traders Association, a group which constantly deals with the currencies in their daily transactions, confirmed this to Citi Business News.
Dr. Joseph Obeng said, “When the dollar was GHS7.6, I came to say that our capitals have been depleted by about 16 percent. And then later I came to say we were going to about 25 percent. That was when the dollar was about GHS8.4. Now it has come back towards the GHS7.6. So it’s reducing and we believe that this will help businesses.”
Kingsley Ayensu is a Foreign Exchange trader at Access Bank Ghana and he explained to Citi Business News what exactly is accounting for the change in behavior of the cedi and what the way forward is.
“The Finance Minister’s announcement coupled with other factors have helped bolster the cedi. It affected people’s perception especially since behavior on the dollar is largely based on speculation. People rather thought that the cedi has hit its limit and would also turn backwards and so it led to people who were hoarding dollars letting go of it to increase supply of the dollar on the market.”
He continued, “Again, the increase in monetary policy rate also affected investments because people will rather now want to keep their investment in cedi because they’ll get more rather than converting to dollars.”