The Bank of Ghana (BoG) must do more to shore-up the cedi, say market players – who predict that the local currency will remain under pressure as importers continue to seek scarce dollars to pay for goods procured on credit during the holidays as well as buy fresh stocks for the New Year.
Last week the BoG, which has been cautious about using its international reserves too quickly to ease the shortage of dollars, said it had injected $20 million to meet demand in selected sectors.
But the amount was seen as paltry, with banks saying the central bank must intervene more vigorously lest the cedi, which fell by 3.1 percent against the dollar in January, gives up further ground to not just the greenback, but also the euro, pound and CFA.
At the start of the year, the exchange rate was 2.335 cedis to the dollar, but it slipped to 2.45 cedis by the end of January, according to data from Bloomberg.
By mid-morning on Monday, the currency was at 2.4650 to the dollar.
“Basically, what we have seen from the beginning of the year is that the currency has come under pressure mainly from strong demand on both the corporate and retail side”, said Inusah Musah, Head, Global Markets, at Stanbic Bank in Accra.
“We are also experiencing a supply issue because the mining sector, which is one of the key forex providers in the country, is going some price challenges. And once you have more demand than supply, naturally, you expect the push.”
He added that “from where we sit in the market, [the central bank] needs to do more in terms of supply to ease off the pressure”. Though the BoG has supplied dollars to aid the import of oil, non-oil demand – which is also strong – has not been met sufficiently,” he said.
Another banker who keeps his eye on the, currency market – but asked not to be named because he i$ not authorised to speak – said the remainder of the first quarter is a critical period for the market, with more depreciation pressure on the cedi’ expected from multinationals that will be buying dollars to repatriate dividends to shareholders. .
“I don’t see the demand [for dollars] easing in the coming months. So the solution is to increase the supply, because this is purely a demand and supply issue,” he said.
The BoG seems in a quandary,* however: its reserve’s, which stood at US$5.6billion in November, are enough for only 2.9 months of imports compared to its target of 3 months – and hot all of it is liquid, which limits the extent of its interventions.