Ghana’s Cedi Now Worst Performing Currency In Africa

Category: Business & Economics Created on Thursday, 19 April 2012 21:41 Published Date Written by EW News Desk Team Hits: 1050

The value of Ghana’s cedi will decline by another 9.2 percent in 2012 following record depreciation last year, said a report by Bloomberg on Wednesday, which will make the cedi the worst-performing African currency over the last two years.

Though Ghana’s economy managed to expand by 14.4 percent in 2011 spurred by oil production, demand for US dollars by local producers to buy equipment and raw materials sent the value of their local currency tumbling; with rising imports and a looming elections set to sap confidence even further, claimed the Standard Bank Group Ltd, Africa’s largest lender.

On Wednesday, the cedi once again extended its record slide against the dollar with the dollar-cedi rate hitting 1.8210 by 1400 GMT, after opening at 1.8170. According to Kobla Nyaletey, the Chief Trader at Barclays Ghana, the cedi’s losses this year had amounted to more than 11 percent against the dollar.

"The Ghanaian market is a flow market. The market responds best when it sees dollars," said Nyaletey in an interview with Reuters, after dealers ignored a move by the Bank of Ghana last Friday to raise its benchmark interest rate to 14.5 percent to stem the currency’s depreciation.

“The best method to restore cedi confidence is via higher interest rates, but as the examples of Kenya, Uganda, Tanzania and Nigeria have taught us, Ghana may still have some way to go to adequately switch the negative market psychology,” added Stephen Bailey-Smith, an emerging- market strategist at Standard Bank’s office in London"

Bank of Ghana’s governor Kwesi Amissah-Arthur admitted that the declining cedi was “a major source of concern” that required “decisive policy measures,” though he also criticised naysayers who were constantly predicting the fall of the currency.

“I don’t understand why people are talking down the cedi. This does not help. The Central Bank is responsible for 90 percent of foreign exchange transactions, and some of these traders who quote high [exchange] rates operate in a minor segment of the market,” said Amissah-Arthur to The Business And Financial Times in Africa.

Amissah-Arthur added that the central bank may now attempt to lower the required single currency net open position (NOP) of banks in order to improve the foreign-exchange supply by banks to the market, which would hopefully help to reduce the demand for foreign currency and also boost the value of the cedi.

The Bank of Ghana will be closely monitoring developments and will not hesitate to take additional measures if deemed necessary, assured the central bank’s governor, who also expressed his intention to minimise the risks of inflation in the country.

Consumer inflation in Ghana rose to 8.8 percent last month, following February’s 8.6 percent. Ghana’s foreign reserves has also declined from $5.4 billion last December to just $4.6 billion. But the nation’s economic growth is still expected to be robust this year, with Ghana’s Finance Ministry forecast 9.4 percent growth after oil production began at the Jubilee oil field in 2010.