Mr. Kwabena Nyarko, a Financial Market Expert and the CEO of Pipliquidator Fx has waded into the debate of potential reasons for the cedi’s recent stability against major trading currencies, especially the American dollar.

Mr. Nyarko in an interview with the Vaultz News noted that the month-on-month decline in inflation rate, the decision to cut the monetary policy rate by the Bank of Ghana (BoG) and the payment of some coupons by the finance ministry and the upturn in the overall economy has led to general boost in the economy, leading to the recent strengthening of the cedi.

“Foreign exchange interventions by the central bank is key. The domestic currency is seeing some stability recently thanks to the Central Bank lowering rates with inflation also dropping. The unfolding scenarios reduced the risk of hyperinflation with potentially harmful consequences for the poor within the economy.

“This is because the stability in the forex will stabilize prices of a lot of imported goods. Since Ghana tends to import basically everything, it is a good news to local consumers.”
Mr. Kwabena Nyarko

Mr Nyarko asserted that the gains in the forex must be balanced with conscious efforts to keep the economy going in the face of current challenges facing the economy. “We need to improve local production and diversification of the economy from foreign dependent to local contents to stabilize the forex”.

“Depreciation of the cedi is as a result of the incessant demand on the foreign currencies which weakens the cedi over time. In our economy, most of our inflation rise is as a result of depreciation of the cedi… And the biggest driver of inflation is the stubborn rise in food inflation. This can be reversed by increased support for agriculture and government policies that support the sector.”
Mr. Kwabena Nyarko

In Mr Nyarko’s assessment, contrary to other views, the government’s Gold-for-Oil program has also contributed to the recent stability of the cedi. He explained that the program has taken a huge demand of the dollar for fuel importation off the exchange market. He thus, stressed saying that “it is equally an important policy intervention from the government”.

Speaking on inflation, Mr Nyarko said although the BoG recently demonstrated greater commitment to combat inflation by monetary policy action, the strengthening of the economy through local production will reverse negative trends in the economy. He explained that as inflation rate remains higher than interest rates, returns on investment will drop and foreign capital inflows will fall leading to sluggish economic growth.

BoG to Liberalize Foreign Exchange Market

The analyst, therefore, urged the BoG to liberalise the foreign exchange market, ensure paradigm shift from demand to supply measures, support SMEs infrastructure and joint venture finance, promote skills awareness for operators, ensure more collaborations among stakeholders and make industry-friendly policies for the good of the economy.

Mr Nyarko, moreover, called on the government to encourage Business Development Companies (BDCs). According to him, globally, BDCs remain one of the channels through which the Diaspora remittance funds come into countries as they remain at the centre of economic development and have the capacity to attract needed capital for the development of the Ghanaian economy and deepening of the forex market.

“Making BDCs one of the channels through which millions annual Diaspora remittances enter the economy will give depth to the forex market and boost BDCs operations. Reason being that remittances are known to help poorer recipients meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt and essentially, drive economic growth.”
Mr. Kwabena Nyarko

The monetary policy rate (MPR) is the baseline interest rate in an economy, intent on cushioning the effects of the country’s inflation rate and restoring investor sentiment.

The apex bank has maintained a hawkish rate policy since 2022 as part of its move to stem Ghana’s rising inflation rate which rose for the consecutive months before started dropping recently.

On the other hand, the cedi continues to show a strong performance against the US dollar in recent weeks. The Cedi gained against the dollar, climbing to GH¢12.25 from GH¢12.41 at last week’s close as FX demand eased. Meanwhile, other currencies also followed similar tangent.

To be certain, although the exchange rate has marginally improved and inflation rates declining, most Ghanaians continue to languish under the lash of skyrocketing prices of commodities and deteriorating standards of living.