Currency stability expectations remain high

Even though the local unit’s volatility is a source of major concern to many, government remains optimistic about the cedi’s stability.

At the Monthly Press Briefing on the Economy last week, Finance Minister Dr. Mohammed Amin Adam outlined several factors expected to bolster the country’s foreign exchange (FX) reserves and stabilise the currency.

For starters, government anticipates several significant FX inflows in the coming months. “The following expected inflows and signals will also help improve the supply of Forex and/or exchange rate stability going forward,” Dr. Amin indicated.

These include a US$360million inflow following successful completion of the IMF programme’s third review; a US$300million inflow after approval of the World Bank’s Development Policy Operation 2 (DPO2) and a successful restructuring of external debt.

The Finance Minister also addressed concerns about COCOBOD’s financial strategy for the upcoming 2024/25 crop season. He clarified that government will seek funds through syndication and other alternative sources as part of measures to improve COCOBOD’s financial viability.

This comes amid market concerns following COCOBOD’s decision not to pursue its traditional annual cocoa syndication loan, which has led to renewed questions about the cedi’s short-term stability.

The cedi’s cumulative depreciation against the US dollar stood at 18.6 percent at the end of June 2024, compared to 22 percent in the same period in 2023. As of August 26, 2024, the cumulative depreciation was 21.5 percent slightly better than the 22.1 percent recorded during the same period of 2023.

However, recent investor updates from Databank and Constant Capital highlighted ongoing challenges in the currency market. The cedi’s recent decline has been attributed to subdued FX liquidity and high demand.

Analysts point to several contributing factors, including government coupon payments and continued market uncertainties following COCOBOD’s decision regarding the cocoa loan syndication.

Market participants fear that lack of this traditional source of FX inflow could put additional pressure on the currency, especially in the face of high demand and limited supply.

It is hoped that government’s multi-pronged approach will stabilise the cedi.