10 Reasons For The Cedi’s Recent Gains Against the Dollar

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10 Reasons For The Cedi's Recent Gains Against the Dollar
10 Reasons For The Cedi's Recent Gains Against the Dollar

The cedi’s recent gains against the dollar and other foreign currencies have been the talk of the town this week. Many are wondering how the cedi suddenly began rising after falling flat against the major currencies. GhNewsBanQ has compiled 10 reasons for the cedi’s recent gains from Bloomberg, elite financial experts, forex traders, and the Bank of Ghana.

10 Reasons For The Cedi’s Recent Gains Against the Dollar

  1. The tightening of monetary policy has reduced cedi liquidity in the system.
  2. The recent  IMF staff-level agreement on a $ 3 billion loan has bolstered investor confidence.
  3. Speculative behaviour has slowed causing a lot of forexes to be offloaded as a store of value.
  4. There are high expectations of further cedi recovery. This has caused a significant drop in forex demand.
  5. The government’s Gold-4-Oil swap transactions have also brought some renewed confidence.
  6. Should the Gold-4 Oil Start, the dollar supply will increase and cause the cedi to further rise
  7. Bulk Distribution Company’s demand for forex has declined (60% at the last auction) because of the Gold-4-Oil announcement.
  8. The dollar is losing ground on softer-than-expected US Inflation. This has brought renewed hope that the Fed might slow the pace of rate hikes.
  9. China’s decision to ease COVID-19 restrictions is also improving risk sentiments on the global level.

10. BoG reasons for cedi’s stability against the US dollar

The Bank of Ghana (BoG) has attributed the recent increases in the cedi to a fresh set of monetary policies it has put in place.

The performance of the cedi, according to Stephen Opata, Director of Financial Markets at the Bank of Ghana, can be attributed to the BoG’s choice to limit foreign exchange support to a few vital commodities, including petroleum products and medical and pharmaceutical items.

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He added that the cedi’s gains can also be attributed to the prudent management of liquidity in the financial system.

“We have also seen that Monetary Policy has been tightened, coming on the back of recent increases in the policy rate to 27 percent. This has also contributed to the cedi’s good run”, he added.

He noted that “the continuous hike in the policy rate will also ensure that excess cedis cannot be used to purchase government bonds and other securities, despite current concerns with the proposed debt exchange programme”.

According to Mr Opata, these might be some of the main causes for the cedi’s stability against the dollar over the past three weeks.

Background

When traded on the currency market, the cedi has made some steady gains versus the US dollar.

Based on the average prices issued by some of the country’s commercial banks, the local currency has decreased from 15 to about 10 a dollar since November 2022.

Meanwhile, some financial commentators have connected the government’s personnel arrangement agreement with the IMF to the cedi’s fast recovery.

In a previous weekly report, Databank Financial Service made the forecast that the cedi’s recent upward trend would continue.

Some observers believe that the US Federal Reserve’s indications that it will begin to ease up on rate hikes have also helped to stabilise the cedi.

See Also: Ghana’s Cedi ranked as the world’s worst-performing currency in 2022.

Cedi’s recent performance according to Bloomberg

From December 5, 2022, to December 9, 2022, the cedi increased in value relative to the dollar by more than 10%, according to Bloomberg.

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As a result, out of the 150 currencies tracked by Bloomberg News, the cedi advanced the highest.

Bloomberg’s tracker for December 12, 2022, revealed that the Ghana cedi gained about 10% in comparison to the world’s top four currencies.

Sustaining the cedi performance

Mr. Opata underlined that maintaining the cedi’s success will be dependent on more than just currency availability.

“The issue would also depend on the current ongoing reforms in the economy that are being performed by the government.”

He noted that the staff’s deal with the IMF is a significant move that will aid in the stabilisation of the cedi.

Dr Priscilla Twumasi Baffour, an economist, has stated that the BoG must work hard to cope with speculators’ activities.

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