THE Ghana cedi has recorded an impressive performance against major trading currencies on the forex market in the past few weeks of 2020, contrary to speculations.
Traditionally, the cedi has been under pressure at the end or the beginning of every year when demand rises on the back of huge demand from importers and multinationals who have to repatriate business proceeds to parent organisations.
The local currency opened the year trading at GH₵5.70 to a dollar but contrary to market expectations, the cedi started witnessing some appreciation against other currencies in mid-January
As of February 5, 2020, the cedi had appreciated by some 5 per cent since January 1 to trade at GH₵5.40 to a dollar.
Economic Analyst at New Era Africa (NERA), Emmanuel Zewu, said the cedi’s performance this year has helped managed expectations and the central bank must take full credit for its recent performance.
“We must give Bank of Ghana (BoG) credit for the management of cedi this year. The performance of the cedi in January has helped managed expectations which will mostly fuel speculation on the market leading to the usual depreciation,” Mr Zewu indicated.
Forward forex sale has been helpful
He added that the catalyst in all this is the Bank of Ghana’s forward forex sale.
The Economic Analyst explained that although the central bank has not been able to take all the amounts that the banks require, it has however allowed it to fairly estimate the demand on the spot market.
“So, if the demand can fairly be estimated you can just imagine that the central bank will have some comfort in managing the local currency,” Mr Zewu added.
Stability will be short-lived
According to him, the stability of the local currency is not sustainable adding that, “For how long can the central bank continue to intervene on the market. We can’t say BoG should completely leave the market, but the consistency of it is problematic.”
He said a closer look at Ghana’s external sector performance shows that the balances are strengthening. But Mr Zewu was of the view that, this will not immediately aid the performance of the cedi against the major trading currencies.
“This because of the increasing interest payment obligations, which are most in foreign currency.”
Coronavirus in China may be a factor
Amadou Zakaria, a forex dealer at Maamobi, said demand for the major foreign currencies have reduced in the past for weeks but he blamed it on the coronavirus outbreak in China.
“Now people are not buying dollar like last year. The people who buy usually buy go to China to buy goods but because of the [corona] virus, many are not buying dollar to send to China,” Zakaria indicated.