Can cedi breakaway from weakening cycle?
The Ghana cedi continues to lose more ground against the U.S. dollar with analysts estimating the local currency has lost about 14 per cent of its value so far this year. Courage Boti, Economist at GCB Capital says oil sector payments, corporate demand and speculation in the FX market remain pressure points driving the fall.
Tue, 14 May 2024 14:39:32 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Energy sector payments and corporate demand, particularly from oil importers, are intensifying pressure on the cedi in the FX market.
- The looming elections and historical patterns of currency instability fuel speculation and add to the depreciation of the cedi.
- Pending deals, such as IMF approval and creditor agreements, are crucial for restoring investor confidence and stabilizing the cedi.
The Ghana Cedi continues to face a steep decline against the U.S. dollar this year, with estimates indicating a loss of about 14% of its value. Courage Boti, Economist at GCB Capital, highlights several key factors contributing to this downward trend. One major source of pressure, according to Boti, is the energy sector payments managed by the Bank of Ghana. Additionally, corporate demand, particularly from oil importers and other companies during profit season, has intensified the strain on the FX market. Speculation, driven by looming elections and historical patterns of currency instability, has further exacerbated the situation. Despite assurances from the Bank of Ghana governor regarding reserve stability, the cedi continues to falter.
Boti acknowledges that pending deals, such as the IMF's executive board approval and creditor agreements, are pivotal for the cedi's recovery. The delayed disbursement of funds and ongoing negotiations have left markets uncertain, fueling speculative behavior. Boti emphasizes the need for sustained progress in economic reforms and cautious fiscal management to regain investor confidence.
As the country prepares for the MPC meeting, concerns around inflation persist. While recent data suggests a slight slowdown in inflation, the lingering impact of FX market volatility raises questions about the upcoming Monetary Policy Committee discussions. Boti predicts a modest drop in inflation levels due to base effects but cautions that external pressures could offset this decline. Anticipating a hold on the NPR, Boti underscores the importance of closely monitoring economic indicators to navigate through current challenges.
Despite the uncertainties surrounding the cedi's performance and inflation dynamics, Boti remains cautiously optimistic about Ghana's economic outlook. With a keen eye on market trends and policy developments, stakeholders are urged to adopt a proactive approach to address the underlying issues driving the currency depreciation.
