Cedi under Christmas pressure

The Ghana cedi which enjoyed some relative stability in the last two months against the US Dollar has started witnessing some pressures due to the incoming festive season.

Historically, the local currency usually comes under pressure during the Christmas and New Year festivities.

Last week, the cedi weakened by 0.1 percent to the American currency to end Friday November 13 at GH¢3.82.

Ecobank Research latest analysis about the Cedi indicates that the local currency will further depreciate due to increased expectation that US interest rates will be raised soon given a positive US jobs report for October released last week.

The Federal Reserve is also expected to raise rates at its December meeting along with European Central Bank (ECB) measures to manage deflation in the euro zone.

The local currency had declined by 15.3 percent to the US Dollar since January 1, 2015.

The Gambian dalasi is however still the best currency among the 25 Sub-Saharan African currencies this year, appreciating by 9.5 percent as at November 13, 2015.

Neighbouring Nigeria’s Naira has depreciated by only 6.5 percent to the dollar while the Ivory Coast CFA has also lost value of 11.7 percent to the most important currency in the world.

Ecobank Research added that unless the International Monetary Fund advised reforms continue to be successfully implemented, the cedi’s outlook is undermined by sustained strong dollar demand to meet import bills, dollar debt servicing costs, and large and unsustainable fiscal and current account deficits.

“IMF advised reforms will help build confidence but high and accelerating inflation (17.4 percent in October), lower than earlier expected 2015/16 cocoa crop, and higher spending in run-up to next year’s elections all raise concerns”, it emphasized.

According to the Bank of Ghana’s latest Monetary Policy Report, maintaining a tight monetary policy stance will reinforce the relative stability in the foreign exchange market and dampen risks related to the external financial conditions.