New Bank of Ghana controls on foreign exchange transactions, which are intended to curb the rapid fall of the cedi, are a step in the right direction, Stanbic Bank’s Head of Global Markets Inusah Musah has said.
Enumerating some key positive impacts the measures will have on the economy, Mr. Inusah noted that apart from reducing the pressure on dollar demand, they will also lead to more supply, thus stabilising the currency in the medium- to long-term.
“I think one major implication is to try to ‘de-dollarise’ the economy, whereby you make it difficult for people to freely transact within the economy using dollars and rather use the local currency for domestic transactions,” he said.
“Now, it has been limited to those who need it for immediate transactions so that you allow the dollar that comes into the market to be used for specific needs like imports and settle transactions outside Ghana — and not for people who want to buy and hold dollars within the economy.
“In broad terms, it is to try as much as much as possible to make cedi the preferred currency in Ghana and allow any dollar liquidity to be used for immediate dollar needs.”
The cedi has fallen by 5.1 percent against the dollar this year, on top of 18 percent depreciation in 2012. The currency’s steep slide in January and the threat that poses to already stubborn inflation caused to central bank to raise its key lending rate from 16 percent to 18 percent last week.
Mr. Inusah said the interest-rate hike will make it attractive for people to come to the market to hold cedi instruments.
“The interest rate has gone up, so now if T-bills and other instruments also go up and the currency stabilises, then portfolio investors will come into the market and a lot more dollars will come in to shore-up reserves.
“So in the short term you limit demand to what is needed, and you also create an opportunity on the supply side for portfolio investors to come into the market.”
Central banks in emerging markets have raised rates recently to halt a fall in their currencies as a result of the US Federal Reserve’s commencement of “tapering”, which has seen a slowdown in the Fed’s monthly injection of dollars into American economy.
Describing Ghana’s economic systems as “liberal”, Mr. Inusah said that recent occurrences have made the regulator realign “Ghana to what other countries are doing, tighten the loose ends and allow free trade to happen on only the legitimate side of the market.”
Citing the example of South Africa, he added: “when you are buying anything there, you are asked to use the rand; when you give them the dollar they won’t take it. The hotels will ask you to convert and pay in rand. That compels you to spend rand in South Africa rather than the dollar. So we are moving towards that which is in line with what other people do.”