Cedi to record relative stability… to dollar in quarter 4 2021

The Ghana cedi will record relative stability to the dollar for the last quarter of this year, despite expected pressures during the Christmas period whereby traders will be importing goods to sell, Senior Economic Analyst at Databank Research, Courage Martey has said.

He said the $1.5 billion Cocoa Syndication loan out of which $750 million was expected to hit the account of the Bank of Ghana this week would help in the stability of the local currency.

The cedi ended the third quarter of this year with a modest deprecation of 1.81 per cent to the dollar, lower than the 2.96 per cent depreciation recorded during the same period in 2020.

The 1.81 per cent depreciation is the best performance achieved in about 20 years.

He said “As we move into the final quarter of 2021, we are quiet assured of continued relative stability but with a depreciation that will occur at a controlled or modest pace because already we have a strong reserve buffer in excess of five months of import cover. And from October, we should start to see the tranche disbursement of the $1.5 billion Cocoa Syndicated facility which will strengthen the cedi to see out the rest of this year. So generally, we are very positive about the cedi.”

“We do not expect that these inflows will translate into appreciation in the fourth quarter of this year. However, we think it will likely mitigate any potential shocks on the currency,” he mentioned.

There are expected potential shocks mainly from foreign portfolio reaction to the development in the advanced market where the US and other European Central Banks have decided to begin their asset purchasing programme, starting from later this year.

Mr Martey said “now that the interest rate of US treasuries is expected to rise and the implication on our market is that portfolio investors could start repatriating some of their dividends, some of their coupons and even liquidating some of their capital positions. And for the dollars to flow out that will create demand pressures on the foreign exchange market and cause depreciation pressure for the cedi.”

He however, stated that “we believe that the inflow from the cocoa syndicated facility to boost an already strong reserve should provide enough buffer to see the cedi through the rest of this year.”

The Ghana cedi slipped one place to the 9th position out of 15th top African currencies at the end of the third quarter of this year.

According to Joy Business tracking of the performance of African currencies, the local currency had not fared badly at all, based on the 1.78 per cent declined in value to the dollar.

In August 2021, the cedi was ranked 8th among Africa’s top currencies with a depreciation of 1.30 per cent to the US dollar.

 This was after it had appreciated against the American ‘greenback’ in the first six months of this year.

The Namibian dollar dislodged the local currency from the 8th position after an improved performance against the American currency in September 2021.