Cedi ready for rebound on high real rates - Societe Generale

Ghana’s cedi looks ripe for a rebound after hitting a new low against the dollar, helped by high interest rates, a better outlook for government finances and earnings from gold.

“We believe the upside to the dollar/cedi is limited now, as risks concerning Ghana’s outlook should already be in the price, while real rates are likely to remain wide and positive,” SG strategist Gergely Urmossy wrote in a note to clients.

The cedi weakened 0.1% to a new low of 15.69 per dollar at 1:27 p.m. in Accra, the capital. That takes its losses since the start of the year to 24%, amid concern the government would spend heavily ahead of presidential elections in December, as has happened in the past.

In fact, the government in July projected a 2024 deficit of 4.2% of gross domestic product, down from 4.8% previously.

It also matched growth forecasts from the International Monetary Fund, which provided the West African nation with a $3 billion rescue program to help it during a lengthy debt restructuring after Ghana defaulted in 2022.

Real, inflation-adjusted interest rates have also been buoyed by declining price pressures. The central bank has held its policy benchmark at 29% since January, even as inflation has cooled to 20.4% from 23.5%.

The cedi is also getting growing support from Ghana’s gold exports, helping to offset disappointing revenue from cocoa shipments that have been crimped by bad weather.

“We are seeing a growing offset from Ghana’s robust gold exports,” Nikolaus Geromont, a strategist at Absa Group Ltd., said in a note to clients. “Given that we expect the current account surplus to rise, the pace of the cedi’s weakness could ease from here.”

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