Bank of Ghana sanguine on small cedi

By Reynt-Jan Sloet van Oldruitenborgh

ACCRA, April 14 (Reuters) - Ghana's currency, the cedi, has fallen slightly in the first quarter but tight control over money supply and lower inflation should ensure it steadies over the full year, a senior central bank official said.

Kofi Wampah, head of research at the Bank of Ghana, told Reuters that factors such as credit financing for imports at the end of 1998 plus Moslems' need for hard cash for their pilgrimage to Mecca explained the fall in the first quarter.

Wampah said 90 percent of imports are financed on credit.

``For the Christmas imports, which are huge, most of the payments are due in January or February,'' he said in an interview.

``Also, the media have talked a lot of foreign exchange shortage and it is likely that the public has bought currency in advance, when they expect the dollar to become more expensive,'' he added.

Central bank data show the cedi depreciated by 2.9 percent in the first quarter against 2.4 percent in the first quarter of 1998. The interbank mid-rate at the end of March was 2,394 per dollar. It was quoted on Wednesday at around 2,415 per dollar.

The currency was remarkably stable in 1998, falling by only four percent after 22.7 percent in 1997.

Wampah said the main factors behind the stability in 1998 were tight monetary policy and strong revenue from cocoa exports.

He said revenue from cocoa would probably be lower this year, but a higher amount of donor funding was expected, notably from the World Bank and Japan, which would help the cedi.

Wampah is a member of the Ghanaian team negotiating a third Enhanced Structural Adjustment Facility with the International Monetary Fund. He said the government expected it to be agreed by the end of the month.

Lower inflation would also be supportive of the currency.

The latest published data show that year-on-year inflation fell to 15.3 percent in January from 15.8 percent in December.

Wampah said it was down to 15.0 percent in February, adding: ``The target of 9.5 percent for the end of this year is achievable.''

``We are reducing the (year-on-year) growth of broad money supply. It came down to 17.2 percent in February compared to 17.6 percent last December and 39.5 percent in December 1997,'' he said. ``Our target is 15 percent for the end of this year.''

Next to the money supply, the food situation was the most important factor influencing inflation, according to Wampah, and harvests promised to be better this year than last, he said.

Food has a weight of 52 percent in Ghana's consumer price index.

In addition, public finances were improving, with the goverment targetting a primary surplus of 3.8 percent of gross domestic product this year.

``I think it is still a bit early to say for sure if they would be able to achieve that, but the indication is that they will be putting in the effort,'' Wampah said.