Can new BoG rules halt speculators?

All things being equal, currency speculators will no longer be the determinants of the cedi’s fate as the new Bank of Ghana (BoG) forex guidelines take effect next week.

The Bank of Ghana earlier this month issued new foreign currency directives that require exporters to repatriate all export proceeds to the country, which alters several forex requirements of the central bank.

The guidelines seek to reduce BoG’s involvement in the daily forex market and give more freedom for commercial banks to work with other players in the market.

Several market players, from bankers to analysts, have described the policy as a step in the right direction, with Alhassan Andani of Stanbic Bank describing it as “the best policy ever” from the Central Bank.

“It is the best policy ever, because the market is the best manager of resource, it’s been proved over the years and over several economic experimentations around the world that regulators don’t manage situations,” he told the B&FT.

“It will significantly reduce speculation, because the market will have enough information and FX. Once the supply and demand situations are determined by the markets, speculators will have no room. Exporters and importers will now know that they can exchange on an open and transparent market, and we will get some price stability.”

Speculators have been blamed for profiteering from the cedi’s annual collapse, especially over the past three years when the currency plummeted by as much as 40 percent in 2014 and the first half of 2015.

Despite the relative stability the cedi has enjoyed this year, many analysts still believe that speculation can still disrupt this stability unless the central bank makes a move to reduce its involvement in the market.

But the regulator has also recently directed mining companies to surrender all their foreign exchange directly to the banks, which hitherto was surrendered to the central bank.

A report by RMB Global Markets Research has said the new Bank of Ghana forex guidelines could increase the daily interbank trade volumes from about US$25million to about US$65million, which will significantly sustain stability over long periods.

The report by the research arm of corporate investment bank RMB believes the guidelines will reduce pressure on the cedi, saying: “We see easing of pressure over the next few weeks. The cedi is experiencing pressure as a result of high dollar demand from oil importers and multinationals”.

Also speaking to the B&FT, Issah Adam-Managing Director of GN Bank, indicated that: “These new directives will not eliminate speculation completely, but they will reduce it drastically”.

He called for an increment in exports to increase the inflow of foreign exchange to substantially support the cedi.

Sampson Akligoh, Managing Director of InvestCorp-an investment bank, also told the B&FT that the new BoG guidelines are a step in the right direction and will help stabilise the market.

“This decision is long overdue because the banking sector and other players, including exporters and importers, understand their FX needs more than the central bank, so we will see a significant improvement in allocating FX.

“This means that the FX market, over the medium-term, is going to be more stable than today. In that regard, the decision is going to improve transparency and efficiency significantly for the country,” he said.