Economic rebound gains momentum

Finance Minister Dr. Mohammed Amin Adam has highlighted ongoing efforts to bolster the economy, including an expected US$1billion injection from development partners by year-end.

“The government is implementing measures on the fiscal side, including acceleration of disbursements of almost US$1billion by our development partners between now and December this year to support the economy,” Dr. Adam said at the 3i Africa Summit in Accra.

These measures come amid glimmers of broader economic recovery with gross domestic product (GDP) surpassing its 2023 growth target, achieving a 2.9 percent appreciation.

Inflation is trending toward the year-end target of 15 percent, albeit at a slower pace than earlier anticipated, and interest rates have recorded minimal downward adjustments. “For this reason, Ghana’s economic rebound has been quite swift,” Dr. Adam stated.

However, the cedi continues to face depreciation pressures with year-to-date depreciation sitting at 12 percent; a development, the minister maintained is an improvement over the almost 30 percent depreciation in the same period last year.

“Despite recent pressures on our currency, the cedi’s depreciation year-to-date of 12 percent is far lower than its depreciation of 27 percent in the same period last year,” Dr. Adam noted.

Twin concerns

Nonetheless, sustained demand for the primary trading currency – the US dollar – from local businesses continues to deepen the pressure on the local unit. In the past week, in the retail foreign exchange market, the GH¢ weakened against all three major currencies: USD (by 2.89 percent weekly, 17.32 percent year-to-date), euro (by 3.52 percent weekly, 15.20 percent year-to-date), and British pound (by 3.03 percent weekly, 16.63percent year-to-date). This was in spite of the bank of Ghana’s intervention of US$23million on the spot market, which failed to stem the tide.

Already, there are ongoing concerns about the inflationary trend. April 2024 inflation dipped to 25 percent year-on-year, with food inflation dropping to 26.8 percent. However, there was a slight uptick in month-on-month inflation, which analysts say could result in some speculative demand for the greenback.

“We believe the upside risk to inflation, which could induce further upticks in the headline print, may fuel more speculative demand for the USD and weaken the GH¢,” Databank Research cautioned.

Eyes remain on the US Federal Reserve, which is set to announce the inflation rate for April 2024 this week. This, analysts believe, could hint at the Fed’s policy rate path during the Jun 2024 meeting.

Market watchers believe that as “the number of Americans filing new claims for unemployment benefits rose last week to the highest level in more than eight months,” according to Reuters, it will result in lower demand, and consequently bring inflation closer to the 2 percent Fed target. Consequently, many analysts do not expect a rate hike.

“Current US data showed claims for unemployment benefits data rose last week to the highest level in eight months. We believe this development indicates softening consumer demand, which may be due to a tight labour market and, hence, may cool inflation,” Databank Research noted.

“We believe a downward trend in the US inflation will help ease the cedi’s woes a tad. However, we tip the cedi to lose ground to the major trading currencies this week on the back of persistent corporate demand,” it added.