The Ghana cedi has recorded a year-to-date depreciation rate of 2.9 percent in the month of September 2020 against its major trading currency; the US dollar.
A summary of economic and financial data released by the Bank of Ghana on Friday; September 25, 2020 showed a trajectory of cedi depreciation in the past six months.
The recent data showed that the cedi has depreciated consecutively since April this year, having appreciated in the first quarter of 2020, that is, from January to March.
According to the data, the cedi fed well in January by appreciating in value by 1.2 percent. It then recorded its highest appreciation of 4.5 percent in February. And in march, even though there was an appreciation of 1.7 percent, it was a decline compared to that of February.
The Finance Minister, Ken Ofori-Atta earlier this year attributed the strong performance of the cedi by the end of February 2020 to the US$3 billion sovereign bond issue, strong macroeconomic fundamentals, and Bank of Ghana’s forward auction sales.
He however, noted that “the deterioration in financial market risk sentiment due to the spread of COVID-19 as well as the seasonal demand pressures from the energy and corporate sectors weighed heavily on the cedi.
“On a year-to-date basis, the cedi depreciated by 2.4 percent against the dollar and the euro in June 2020 but appreciated by 4.5 percent against the pound sterling, compared to a depreciation of 8.3, 7.9 and 7.6 percent against the dollar, the euro and the pound sterling, respectively, over the same period in 2019”.
The year-to-date depreciation of the cedi was calculated using the exchange rate for December 2019 as the base year.
The Bank of Ghana explained that “all exchange rates are as of end of the month with the last data observation being as of Thursday, 24th September 2020.
Figure 1: Year-to-date depreciation of cedi against the US dollar
Source: Bank of Ghana
Looking at other currencies aside the US dollar, the highest year-to-date depreciation of the cedi in September was against the Euro, depreciating by 6.4 percent. The figure recorded in September is however much better as compared to July and August when the Ghanaian currency depreciated by 7.2 percent and 8.5 percent respectively.
The cedi however, appreciated marginally against the British pound in September 2020 with a rate of 0.9 percent, having depreciated in the two previous months. Against the British pound, the cedi depreciated by 1.2 percent and 3.7 percent in July and August respectively.
With regards to the nominal bilateral exchange rates, as at September 24, when the data was last observed, it will require GHS5.70 for a person to obtain one US Dollar as compared to GHS5.68 in August 2020.
Figure 2: Nominal exchange rate (GHC/USD)
Source: Bank of Ghana
The figure shows an increasing trend of nominal exchange rate since February when it recorded its lowest rate against the US dollar.
Furthermore, the recent data showed that the real effective exchange rate (REER) index has also increased from 124.8 percent in July to 129.1 percent in August this year. The increment represents a depreciation.
According to Bank of Ghana, “REER is compiled as the weighted average of the Ghanaian Cedi relative to an index or basket of 18 trading partner currencies, adjusted for the effects of inflation. The weights are determined by the respective shares of the 18 trading partners in Ghana’s total trade”.
