Cedi Performance: BoG's intervention before the election not sustainable in the long term – IEA

The Institute for Economic Affairs (IEA) has emphasised that addressing Ghana’s currency depreciation requires sustainable reforms.

According to the Institute, the Bank of Ghana’s intervention ahead of the December 2024 elections cannot be sustained in the long term.

The cedi came under intense pressure last year, climbing from GH¢12 to $1 to over GH¢16 by November 2024.

It peaked at GH¢16.30 in October, declined to GH¢15.37 in November, and further appreciated to GH¢14.70 in December 2024.

The year-to-date depreciation of the cedi against the dollar peaked at -27.1% in October 2024 before improving to -22.7% in November and further to -19.18% in December 2024.

“In fact, by October, before the intervention [by the Bank of Ghana], the GHS/USD had risen to GH¢16.30,” the IEA stated in a report.

It added, “The question is whether the appreciation in November and December can be sustained. The fact is that, as indicated below, the Bank of Ghana’s intervention alone cannot ensure lasting exchange rate stability without far-reaching reform measures.”

The depreciation in 2024 followed a further depreciation of 27.8% in 2023.

The IEA however attributed the cedi’s depreciation to the significant gap between foreign exchange (FX) demand and supply.

It suggested that forex demand must be reduced by increasing domestic reliance while limiting imports.

“On the FX demand side, it is necessary to actively promote domestic production of import substitutes to reduce demand for FX for imports; entrench fiscal and monetary discipline to reduce demand pressures in the economy, including demand for FX; and enforce domestic FX market regulations to reduce demand for FX,” the IEA noted.

For forex supply, it recommended, “There is a need to actively promote exports to increase FX supply; encourage remittances to boost FX inflows; and increase Ghanaian ownership of resources and economic assets to enhance FX availability in the economy.”

According to the IEA, these proposals are not new, but they have not been given the necessary attention.

“This is the reason for reiterating them here,” the Institute concluded.

SSD/MA

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