Cedi plunge confirms doubts

The local currency has in the past two weeks failed to withstand the might of the US dollar, losing 6.31 percent in value on the interbank forex market.

Although the cedi began July strongly on the back of the central bank’s increased dollar sales, the past fortnight has seen the cedi rediscover its woeful performance that characterised the first half of this year.

The cedi as at June 30 had depreciated by 26.2 percent against the greenback, but the pernicious slide was reversed as the cedi appreciated sharply; and by July 17th the YTD depreciation was just 1.1 percent.

The woes of the cedi has since then escalated, closing trading on the interbank market on Friday at GH¢3.4648 -- which shows a 6.6 percent slide since July 17, bringing the year-to-date depreciation to 7.6 percent.

The earlier positive performance was largely attributed to the favourable review the International Monetary Fund (IMF) gave the country in its first appraisal of the 3-year funded programme.

The move by the central bank to boost its sale of the greenback on the interbank market -- from US$14million weekly to US$20million daily, was also a contributory factor in the cedi’s positive surge.

Governor of the central bank Dr. Kofi Wampah, speaking at last month’s MPC press briefing, said the cedi’s appreciation was a result of the bank’s prudent monetary policy.

“…The appreciation of the cedi is not something that happened overnight. We already had these tight monetary policies coming. If you remember, we even increased the policy rate again at the May 2015 meeting. These measures have lag effects. They will work but they may not work immediately,” he said.

While the bank basked in the glory of the cedi’s strong performance, many analysts questioned the sustainability of its daily dollar injection, with the governor confirming that it wasn’t selling US$20million daily at all times.

“…We did sell the US$20million at certain points; but at certain points, too, banks were also selling to us. If you look at the market it is a sellers’ market,” the governor said.

After the July 15 MPC press-briefing, the cedi’s fortunes have reflected the bank’s position on irregular sales of dollars on the forex market.

Biggles Amponsah of the Accra-based Dortis Research told Reuters in an interview the renewed pressure on the cedi was further fuelled by speculative activities, which have led to panic-buying because the central bank had not been very active in the market last week.

"We are likely to see this panic-buying continue unless the central bank resumes the vigorous support it provided in the previous weeks," Amponsah said.

The central bank is expected to resume the increased dollar sales or risk its medium-term inflation outlook, one analyst said.