Government eyes stability in currency despite recent challenges

Last week, the local currency crossed the GH¢16 mark against the US Dollar on the FX retail market, as some forex bureaux and banks sold at rates ranging from GH¢15.95 to GH¢16.20.

However, at the Monthly Press Briefing on the Economy last week, Finance Minister Dr. Mohammed Amin Adam outlined several factors expected to bolster the country’s foreign exchange (FX) reserves and stabilise the currency.

Dr. Adam emphasised that the government anticipates several significant FX inflows in the coming months.

“It is envisaged that the following expected inflows and signals will also help to improve the supply of Forex and/or exchange rate stability going forward,” he stated.

He noted three key expectations: a US$360 million inflow following the successful completion of the third review of the IMF program, a US$300 million inflow after the approval of the World Bank’s Development Policy Operation 2 (DPO2), and the successful restructuring of external debt.

The Finance Minister also sought to address concerns about COCOBOD’s financial strategy for the upcoming 2024/25 crop season.

He clarified that the government would seek funds through syndication and other alternative sources as part of measures to improve COCOBOD’s financial viability.

This statement comes amidst market concerns following COCOBOD’s decision not to pursue its traditional annual cocoa syndication loan, which had led to renewed questions about the Cedi’s short-term stability.

Signs of Stability

The Cedi has shown relative stability against major trading currencies since 2023, despite some recent pressures.

Dr. Adam illustrating this trend,noted that the Cedi’s depreciation against the US dollar improved from 54 percent in November 2022 to 27.8 percent in December 2023, compared to 30.0% in December 2022.

The year-to-date depreciation of the Cedi moderated to 7.7 percent in the first quarter of 2024, compared to 22.1 percent during the same period in 2023.

The cumulative depreciation of the Cedi against the US dollar stood at 18.6 percent at the end of June 2024, compared to 22 percent in the same period in 2023. As of August 26, 2024, the cumulative depreciation was 21.5 percent, slightly better than the 22.1 percent recorded during the same period in 2023.

Month-on-month, the Cedi’s depreciation against the US dollar showed significant improvement, dropping from 6.1 percent in May 2024 to 3.1 percent in June 2024, and further to 2.1 percent in July 2024.

Dr. Adam attributed this relative stability to several key factors, including tight monetary policy by the Bank of Ghana (BoG), strong fiscal consolidation, and strategic programs such as the gold-for-oil initiative and the BoG’s gold-for-reserves program.

Since the inception of the Domestic Gold Purchase Programme (DGPP), the BoG has accumulated sizable foreign exchange buffers, exceeding expectations under the IMF programme. To date, the Bank has purchased 65.4 tonnes of gold valued at US$5.07 billion, with 23 tonnes acquired in 2024 alone.

The Minister also mentioned the deployment of a centralized platform for foreign exchange bureaus by the BoG, the implementation of a dynamic Cash Reserve Ratio (CRR) to absorb excess liquidity, revised regulations on advanced payments for imports, and positive market sentiments following the disbursement of the third tranche of the IMF Extended Credit Facility and the agreement in principle with external creditors.

Market Reactions

Despite these positive indicators, recent investor updates from Databank and Constant Capital highlighted ongoing challenges in the currency market. The Cedi experienced a decline against major trading currencies recent weeks, driven by subdued FX liquidity and high demand.

Analysts have pointed to several contributing factors, including government coupon payments and continued market uncertainties following COCOBOD’s decision regarding the cocoa loan syndication.

The decision by COCOBOD not to raise its annual cocoa syndication loan renewed concerns about the Cedi’s short-term stability. Market participants fear that the lack of this traditional source of FX inflow could put additional pressure on the currency, especially in the face of high demand and limited supply.

Nevertheless, the government remains confident that its multi-pronged approach will stabilise the Cedi.