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Business News Wed, 12 Apr 2017

Cedi to depreciate from the 3rd quarter

A global market economist, Mr Ayomide Mejabi, has predicted the local currency will from the third quarter of this year start depreciating at a slower pace to end the year at GH¢4.65 to a dollar.

He explained that the recent performance of the local currency had been largely affected by the good-will from the citizenry after the general election in 2016.

“At the beginning of the year, our prediction was that the local currency will end the year at GH¢4.65 to a dollar, and we still hold the same view,” Mr Mejabi told the Graphic Business on the sidelines of a forex risk management event on Wednesday, April 5, 2017 in Accra.

The event, which was organised by Stanbic Bank Ghana, is aimed at educating importers on forex risks and solutions in the country.

Mr Mejabi, who is also an economist with Stanbic IBTC Bank, said cocoa would this year experience slower inflows, which would impact negatively on the cedi.

“The major drivers for the local currency are the commodity prices and foreign investor sentiment. Therefore, with the commodity, we expect that oil and gold to perform much better but cocoa would this year experience slower inflows which will impact negatively on the cedi,” he stated.

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“The country also expects to receive substantial inflow into its forex reserves which comes from cocoa proceeds, the International Monetary Fund (IMF) disbursement and from the Eurobond. However, the government had clearly indicated in its budget that it will not issue another Eurobond and this will potentially impact negatively on the country’s forex reserve,” he added.

Hedging as precautionary measure
The economist urged businesses in the country to hedge (as precautionary action) in order to manage their capital flow as medium to long term measures to secure their investment.

According to him, forex hedge, also called foreign exchange hedge, is a method mostly used by companies to eliminate or hedge their foreign exchange risk resulting from transactions in foreign currencies.

“Even if you assume the currency is going to be stable for a while, you can also hedge because many people do not expect the currency to move up in the first quarter of the year but it did,” he said.

“It is a known fact that investors are always interested in channelling their financial resources into “secure” areas of the economy. Most investors prefer to diversify their investments that are to hold a diversified portfolio. In the same way, local businesses could buy dollars on forward basis, depending on the turn out and hedge at today’s price,” he explained. — GB

Source: graphiconline.com.gh
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