With barely five weeks to end the year, the Ghana cedi has come under intense pressure and is being classified among African currencies with the ‘Worst Spot Returns’.
It’s now ranked 14th among 20 top African currencies tracked by Bloomberg. It was actually the best-performing currency in Africa in the first quarter of 2021.
A combination of factors including increased corporate demand for the US dollar and the exit of the country’s bond by some foreign investors have put pressure on the local currency, lately.
The past week has been worst as the local currency lost more grounds to the dollar.
Bloomberg therefore put the depreciation of the cedi at 4.05%, though the Bank of Ghana data shows a lower decline in value of the local currency to the US dollar.
Despite a rebound in oil prices, amongst other exports commodities, it appears dollar inflows are not enough to stabilize the local currency.
Analysts want the Central Bank to up its intervention on the forex market to reduce the rate of depreciation, as foreign investors want faster pace of fiscal consolidation going forward.
Senior Economic Analyst with Databank Research, Courage Martey tells Joy Business there haven’t been any significant appetite for the government securities after the presentation of the 2022 Budget.
“In fact, our gauge of foreign investor sentiment around the budget shows that a lot of foreign investors feel like that a faster pace of fiscal consolidation is necessary. However, they feel the revenue expectations are ambitious and for that matter they are very cautious on the outlook for the FX [foreign exchange] exposure they will take if they come into the local market now.”
“So generally, the supply side is also subdued by the perceived risk to the outlook and there is also elevated demand from corporate investors”, Mr. Martey explained.
“Overall, the cedi is still under pressure and might likely continue to experience this pressure till the end of the year. But we believe that the Central Bank’s regular interventions on the spot and forward market will be sufficient to prevent volatility. So that the depreciation pressures will continue to remain moderate till the end of the year”, he added.
Meanwhile, the Zambian kwacha is the best performing currency in Africa so far this year. The Nigerian naira is however 13th, whilst the South African rand is 19th with a depreciation of 19.28%.