Standard Bank projects slow cedi depreciation

The local currency is expected to depreciate at a much slower pace against the US dollar this year, Standard Bank has projected in a new report.

It said this is a departure from what has been experienced in recent times.

In its August 2018 edition of the African Local Markets Monthly (ALMM) report, the Standard Bank predicts that it is highly probable that the USD/GHS will remain below 4.90 in the coming months.

“On a multi-month basis, it still looks likely that the pair will head higher. But it is likely to be at a far slower pace than we have seen in recent years. We still believe that the pace of depreciation of the GHS will be considerably lower than the average 13.0% annualised pace of depreciation over the last 10 years,” the report said.

The Standard Bank ALMM attributed this to the willingness of the Bank of Ghana (BoG) to supply the currency market with forex rates much lower than prevailing rates, a strengthened balance of payment (BOP) on a durable basis, largely supported by oil exports and government’s issuance of Eurobonds.

According to the report, “The BoG has shown itself to be willing to supply FX to the market whenever there are indications of large outflows. The FX sales are not intended to prevent the GHS from depreciating per se. But it is notable that the BoG’s FX sales are at rates considerably below prevailing interbank rates. Of course, this is not something new. The BoG typically sells USD at rates lower than the prevailing market rates.”

Commenting on the development, Phumelele Mbiyo, Head of Africa Research at Standard Bank said: “Our relatively constructive view is founded on an assessment that the country’s BOP has strengthened on a durable basis. Oil exports have helped to turn the trade balance to surplus, something that is likely to last. In the first five months of the year, total exports amounted to roughly USD1.5 billion, giving rise to a trade surplus of USD261.1 million.”

Phunelele Mbiyo added that “Forex reserves remain relatively robust, something we expect to persist over the remainder of this year and for much of next year. Gross forex reserves amounted to USD5.9 billion in May, up from USD5.0 billion in April. Also, thanks to the government’s issuance of Eurobonds, forex reserves rose to USD7.3 billion at the end of June, covering 3.9 million of imports according to the BoG’s calculations.”

The report also revealed that anecdotal evidence suggests that there has been a fair amount of outflows from the market in the last three months or so.

“While the magnitude is uncertain, the outflows have prompted the BoG to sell some forex. As of the end of May, foreigners held GH¢28.16 billion of local debt out of a total of GH¢72.4 billion.”