Depreciating cedi due to demand and supply imbalances

Dr. Nii Noi Ashong, an economist, has said an existing fundamental structural imbalance between demand and supply of foreign exchange was exerting depreciating pressure on the Ghana cedi.

“The fundamental structural imbalances between demand and supply are posing a constraint to the efficient development of the domestic foreign exchange market,” Dr. Ashong stated at the Institute of Economic Affairs (IEA) policy forum on Bank of Ghana’s (BoG) response to the depreciating cedi.

The forum was on the theme: “The Bank of Ghana’s Response to the Cedi Crisis: An interim Review and Way Forward’’.

Dr. Ashong, also the Deputy Rector of Ghana Institute of Management and Public Administration (GIMPA), said high economic growth rates in Ghana since 2009 had brought in its wake an increase in economic activity and a corresponding higher demand for imports.

He said Ghana’s investment requirements far exceeded the levels of domestic savings needed to finance them and in such an environment, current account deficits are natural occurrences which put pressure on the domestic currency to depreciate.

“The large current account deficits are mainly financed by Official Development Assistance and private financial capital inflows, which means that, despite the underlying structural depreciating pressures on the cedi, there is also a built-in volatility of the exchange rate to changes in market expectations and sentiments,” he said.

Dr. Ashong, therefore, urged BoG to aim at reasonably high holdings of international reserves to cushion the nation against any potential pressures that might arise from operating liberalized open capital account.

Mr. Benjamin Amoah, BoG Head of Financial Stability Department, said the central bank was re-enforcing the policy guideline to reduce the cedi depreciation in the economy.

He said the new policy by BoG was not intended to cripple any business but to ensure that the depreciating cedi was halted to help grow the local currency.

Mr. Willian Boateng, Executive Head of Business Development of Bank of Africa, called on the government to support export oriented business as investor confidence is going down because of the perception that one did not get its money back when investment is made.

He said there was an ongoing activity of parallel banking in the country, which is also not helping the economy and urged BoG to find a way of curbing it.