Cedi faces festive season headwinds amidst import-driven dollar demand

The cedi, having exhibited commendable stability for the majority of the year, is poised to encounter a marginal depreciation against the US dollar in the upcoming festive season, according to insights from the Ghana Association of Forex Bureaux. Despite Fitch Solutions’ projection of the cedi concluding 2023 at 11.40 to the dollar, industry experts cite a surge in dollar demand coupled with heightened imports as potential catalysts for the depreciation.

During an interview, a representative from the Ghana Association of Forex Bureaux noted, “The festive season typically witnesses a heightened demand for foreign currencies, notably the US dollar, given the dollar-denominated nature of a substantial portion of our imports. Consequently, a slight depreciation in the cedi’s value against the dollar is anticipated.”

While conceding to the projected depreciation, the representative emphasized that any such devaluation would be modest. Dr. Alex Akpabli, a notable figure within the forex community, urged regulatory measures on imports to alleviate pressures on the local currency. “Addressing the challenge of high importation is paramount. The Ghana cedi has showcased resilience, and strategic interventions can further enhance its performance,” he remarked.

Looking ahead, Fitch Solutions presents a contrasting outlook, forecasting a 1.0% strengthening of the cedi against the US dollar in 2024. The UK-based firm posits that progress in the restructuring of Ghana’s external debt under the G20 Common Framework, expected by the second quarter of 2024, will serve as a pivotal driver. Successful debt restructuring is anticipated to buoy investor confidence, usher in capital inflows, and fortify the cedi’s position.

As Ghana navigates these economic currents, the delicate equilibrium between import dynamics, regulatory measures, and debt restructuring will play a decisive role in determining the fate of the cedi in the coming months.