The Staff Level Agreement (SLA) reached on Monday by the government with the International Monetary Fund (IMF) and the raft of policy measures initiated by the Bank of Ghana (BoG) are contributing to the appreciation of the cedi, the Director of Research, Dr Philip Abradoo-Otoo, has said.
Explaining the reasons for the appreciation of the cedi in sections of the media, monitored by the Ghanaian Times, he said the SLA agreement had brought confidence in the Ghanaian economy.
“That in itself brought some confidence that the outlook looks very good and that if we are able to follow the right steps and implement our fiscal consolidation plan and stick to the debt restructuring agenda, it bodes well for economic stability. So that in itself has brought some confidence, and it is impacting our currency,” Dr Abradoo-Otoo said.
He said the drastic reduction in imports and other measures were largely responsible for the appreciation of the local currency.
“We had a glimpse of our trade data for November. If you check the data it means there is huge compression in imports. Anytime there is an exchange rate overshoot like we saw, imports tend to go down,” Dr Abradoo-Otoo stated.
On the policy, he said the hike in the monetary policy rate to 27 per cent in November (the rate at which the Bank of Ghana lends to commercial banks) increase in the cash reserve ratio to mop excess liquidity from the market was helping to shore up the cedi.
“If you look at our September press release, we did come up with some measures. On top of the interest rate increase, we increased the cash ratio of the banks. Basically, we were telling the banks that for all the deposits that you have, you needed to hold a portion of that at the central bank,” Dr Abradoo-Otoo added.
So 15 per cent of all deposits in the banking sector were supposed to be locked as reserves. It was designed to try to prevent excess liquidity from passing into the economy to demand dollars. That policy was successful,” the Director of Research stated.
He said the cedi’s woes meant that importers needed more cedi to get dollars in order to bring in products.
“They didn’t have that. It takes time for them to be able to marshal resources to import. If you compare the data from where we were as of November last year, that import bill has gone down by as much as $400 million.
So this is potential demand which hitherto would have come to the doorstep of the central bank for financing. It’s gone down significantly. So it’s an evolution of things that have happened. That demand going down is good for the cedi because we will not have agents coming in to demand that amount for imports,” the Director of Research said.
The cedi has come under intense pressure from international peers since the beginning of the year due in part to the downgrades of the international rating agencies.
It has declined by 53.8 per cent in value against major currencies, especially the dollar, since the beginning of 2022.
It moved from about GH¢6 to a dollar at the beginning of the year to GH¢15 to a dollar in November 2022.
Currently, the Ghanaian currency is selling at about GH¢10 to the dollar, according to data from the Bank of Ghana.
BY KINGSLEY ASARE
