BOG measures helping to stabilize the cedi

Mr. Benjamin Amoah, Head of Financial Stability at the Bank of Ghana, has said there is a slowdown in the depreciation of the cedi after measures by the Bank of Ghana (BOG) to halt it.

The BOG introduced measures at the beginning of the year to halt the depreciation of the cedi, among which included the withdrawal of both Foreign Currency and Foreign Exchange Accounts in cedis, at the existing exchange rate over the counter, except for traveling purposes.

Mr. Amoah stated at a seminar by the Institute of Economic Affairs in Accra on the theme, “The Bank of Ghana’s Response to the Cedi Crisis: An interim Review and Way Forward;” explaining that with the introduction of the new measures, the cumulative depreciation of the cedi against the dollar which was 7.2 per cent from the beginning of January this year, has been reduced to 1.29 per cent as at April 9.

He said in addition to the slowdown in the pace of the depreciation, the market has also witnessed a decline in volatility of the cedi to the US dollar.

He disclosed that, in the medium to long term, however, fostering the stability in the cedi would require a strict adherence to budgetary targets to minimize budget deficits, improving revenue mobilization by widening the tax base, diversification of exports and more intensive efforts to block foreign exchange leakages.

“There is also the need for greater co-ordination, collaboration, communication and co-operation between the fiscal managers and the Bank of Ghana, and this is because, high fiscal and current account deficits are usually associated with significant exchange rate depreciation.

“So as we work towards changing the structure of the economy, there is also the need to bring our fiscal and current account deficits to sustainable levels to ensure sustainable stability of the Cedi,” he said.

Dr. Nii Noi Ashong, Economist and Deputy Rector at GIMPA said, there exists a fundamental structural imbalance between the demand and supply of foreign exchange, exerting depreciating pressure on the Ghana cedi and posing a constraint to the efficient development of the domestic foreign exchange market.

He said the high economic growth rates in Ghana since 2009 has brought in its wake an increase in economic activity and a corresponding higher demand for imports.

“Ghana’s investment requirements far exceed the levels of domestic savings needed to finance them and in such an environment, current account deficits are natural occurrences which put pressure on the domestic currency to depreciate,”

“Ghana’s large current account deficits are mainly financed by Official Development Assistance and private financial capital inflows and this means that, despite the underlying structural depreciating pressures on the cedi, there is also a built-in volatility of the exchange rate to changes in market expectations and sentiments,” he said.

Dr. Ashong, therefore, urged BOG to aim at reasonably high holdings of international reserves, to cushion the nation against any potential pressures that may arise from operating liberalized open capital account.