Business News of Wed, 12 Sep 20188
Cedi depreciation temporary; panic and speculations troubling - AGI
Chief Executive Officer of the Association of Ghana Industries (AGI), has warned that speculations against the downward trend of the cedi could further affect its performance in the future.
Seth Twum Akwaboah says the state of the cedi is just temporary hence the need to halt the speculations.
“The Cedi is depreciating and it’s of concern to our businesses. It’ a seasonal thing and happens once a while. It escalates when we speculate and we give up so soon and give up on the impression that it can’t be solved soon. In that case, people who don’t need the dollar start to buy and hoard foreign currencies. This negatively affects the cedi,” Mr Twum Akwaboah said.
He believes that the permanent and long-term solution to addressing the downward trend of the cedi will be to increase more exports to decrease demand for the dollar.
“So if the depreciating, why is depreciating and what can government do? In the short term, the Bank of Ghana would have to pump in more dollars which they are doing currently. In the long term, we have to reduce our import volumes and increase our local production so that our demand for foreign currency comes down. Once there is pressure on the cedi for imports we tend to have this challenge,” he said.
Reasons for cedi depreciation
The Bank of Ghana has argued that external developments like a strong dollar, expected hikes in the interest of investment assets in the US, as well as an expected increase in the US Federal reserve rate, are impacting on the cedi.
This has seen some of the international investors who bought into the local bonds, exit to purchase US assets.
This has also led most of these Banks that purchased the bonds on behalf of the foreign investors to look for dollars and pay back these firms; a development that has brought some pressure on the local currency.
However, some of the commercial banks told JoyBusiness, that had worsened because of the Bank of Ghana’s slow response or intervention in the market with dollar support which has led to the significant depreciation over the past three weeks.
They also argued that if the central bank is more active on the market, the situation could have been under control.
Assurances from the Bank of Ghana
According to the Bank of Ghana, these blips are temporary and it should be over soon.
Head of Financial Markets and Treasury at the Central Bank, Stephen Opata also said, “markets assistants are responding but we strongly believe that our fundamentals are strong right now so that we could be able to moderate the impact of its external factors”.
Mr Opata added that looking at the Bank of Ghana’s strong reserve position should also assure businesses that there is no need to panic.
“We are making sure there is adequate liquidity to the banks and we are actually doing that. We believe that this should lead to stabilizing the situation quickly”, he added.
Dollar support for Banks
Some of the commercial banks have told JoyBusiness, the Bank of Ghana has not been that active on the market, the reason why the situation may have gotten out of hand.
They have also complained about the amount of dollars that the Bank of Ghana has been releasing for the banks. Sources say, the Central Bank, for instance, has been releasing about $25 million a day to support the commercial banks this week.
There are predictions that the current challenges may not be over even if the regulators are able to firmly stabilize the cedi in the next few weeks.
This is based on the fact that most of our bonds are held by foreigners so any time they decide to get out, that would bring some pressure on the cedi.
Some also argued that since we are an import led economy, anytime that most businesses and industry decide to import more to meet their needs; the cedi could come under pressure again.
However, the Bank of Ghana is optimistic measures being instituted would help stabilize things for a long while, adding that “the blips should be fairly stable from the developments that we’re seeing; we’re seeing some significant recoveries already”.