Cedi revival ushers MPC meeting

The resurgence of the local currency will give the Monetary Policy Committee of the Bank of Ghana a lot to smile about as it begins its 65th regular meeting to review developments in the economy.

The cedi in less than two weeks has reversed its woeful first-half performance that caused the central bank a lot of headaches -- with BoG Governor Henry Wampah citing the dismal performance as part of reasons for raising the lending rate by 100 basis points to 22 percent in May.

The local currency has since June 30 recorded over 25.3 percent gain on the dollar, and the surge of the cedi further threatens to reverse entirely the losses it incurred against its major trading partner in 2015.

As the MPC begins its meeting, the verdict of the IMF’s positive review of the bailout programme will be fresh on their minds; and analysts anticipate that the committee will stay the rate at 22 percent, but will not rule out a surprise move.

But Managing Director of investment advisory firm InvestCorp Sampson Akligoh is betting on a rate hold due to the cedi’s strong performance.“The recovery of the cedi makes it less likely for the MPC to increase the MPR again, and l think we could see the rate being maintained at 22 percent,” he said.

The strong performance of the cedi has contributed to bringing down the year-to-date depreciation to about 7.5 percent as at July, 10. According to investment adviser Mr. Akligoh, the cedi owes it resurgence to tight cedi liquidity in the banking sector, and the increased forex sales -- from US$14million to US$20million daily, by the Bank of Ghana.

“These happenings will certainly help the cedi to strengthen, and I think the expectations about the Eurobond issuance in September as well as the Cocobod loan syndication will provide more support and curtail dollar demand as importers expect further appreciation in Q3-2015,” he said.

But Resident Economist at the Institute for Fiscal Studies, Leslie Dwight Mensah, told the B&FT the cedi's stability hinges ultimately on a strong correction of domestic and external imbalances, which both the monetary and fiscal authorities must work in concert to achieve.

“Over the medium-term, we have got to swiftly address the many constraints to domestic production and export diversification,” Mr. Mensah added.The MPC at its last meeting in May indicated business confidence remained subdued, and a fast-depreciating currency coupled with power unavailability contributed to this development.

But the comeback of the cedi, Mr. Mensah said, will provide a lifeline to business and consumer confidence -- which have been at very low levels for several months.

“My hope, however, is that this is driven by a shift in market conditions, especially on the demand side, rather than an artificial shoring-up of the currency's value. A pick-up in confidence is a much-needed stimulant in the current distressed growth environment.The impact on inflation is not likely to be felt for at least a month, although at the micro level prices of goods and services which are referenced to the exchange rate may begin to decline immediately,” Mr. Mensah added.