Dr. Philip Abradu-Otoo, the Director of Research at the Central Bank of Ghana, has disclosed reasons for the sudden rise in the value of the cedi after over ten months of recording an extreme fall in value of cedi, relatively to other international currencies.
Dr. Abradu-Otoo attributed the current relief from the unpleasant situation to a number of initiatives and measures put in place by the central bank, the government, as well as the recently announced International Monetary Fund (IMF) staff level agreement on the three-year extended credit facility.
According to him, the Ghana cedi depreciated by 53.8% in value against major currencies especially the dollar since the beginning of 2022. It moved from about GH¢6 to a dollar at the beginning of the year to GH¢15 to a dollar in November 2022.
At the moment, the Ghanaian currency is selling at about GH¢9.3047 to the dollar, according to data from the Bank of Ghana, he stated.
In a case for his reasons, Dr. Philip Abradu-Otoo said the massive reduction in imports and other measures are largely responsible for the appreciation of the cedi.
“We had a glimpse of our trade data for November. If you check the data, it means there is a huge compression in imports. Anytime there is an exchange rate overshoot like we saw, imports tend to go down.”
Dr. Philip Abradu-Otoo
The bad performance of the cedi on the market indicated that, importers needed more cedis to get dollars in order to bring in products from other countries, he mentioned.
“They didn’t have that. It takes time for them to be able to marshal resources to import. If you compare the data from where we were as of November last year, that import bill has gone down by as much as $400 million.
“So, this is potential demand which hitherto would have come to the doorstep of the central bank for financing. It’s gone down significantly. So, it’s an evolution of things that have happened. That demand going down is good for the cedi because we will not have agents coming in to demand that amount for imports.”
Dr. Philip Abradu-Otoo
Role Played By Monetary Policy and IMF In the Appreciation of the Cedi
BoG’s Director of Research, Dr. Philip Abradu-Otoo, in making reference to the monetary policy press release for September and November, stipulated that, government came up with some measures concerning bank reserves. On top of the interest rate increase, government increased the cash ratio of the banks.
According to him, this was a means to inform the banks that, for all the deposits that they had, they needed to hold a portion of that with the central banks as reserves.
Fifteen percent (15%) of all deposits in the banking sector were expected to be locked as reserves with BoG. It was designed to prevent excess liquidity from passing into the economy to demand dollars, he added.
Dr. Abradu-Otoo in his conclusion pointed out that, the U$3bn IMF’s staff-level agreement is however another major factor for the rise in the value of the cedi.
“That in itself brought some confidence that the outlook looks very good and that if we are able to follow the right steps and implement our fiscal consolidation plan and stick to the debt restructuring agenda, it bodes well for economic stability. So that in itself has brought some confidence, and it is impacting our currency.”
Dr. Abradu-Otoo
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