In a latest report released by the Bank of Ghana, it has been revealed that the Ghanaian cedi is facing a perilous situation, having depreciated by approximately 25.8% against the US dollar as of November 2023.
This alarming trend has set off concerns among economists, policymakers, and the public alike, as the cedi’s value has been on a downward spiral in recent months.
The cedi, which had remained relatively stable between March and September 2023, began experiencing increased pressure in October and November of this year. The depreciation rate, which stood at 25.4% in October, further escalated to 25.8% in November. This sharp decline in value has set the current exchange rate at around 12.20 against the US dollar, marking a significant setback for the Ghanaian currency.
Furthermore, the cedi has not only lost ground against the dollar but has also depreciated by 28.6% against the pound and 27.7% against the euro. This broad-based depreciation raises concerns about the overall stability of the Ghanaian currency in the global market.
One of the primary factors contributing to this decline is the heightened demand for dollars leading up to the festive season. As businesses and consumers alike seek to engage in international trade and purchase of goods from abroad, there has been an increased demand for the US dollar, putting additional pressure on the already struggling cedi. The festive season often witnesses a surge in imports, exacerbating the demand for foreign currencies.
Despite the Bank of Ghana’s interventions to stabilize the cedi, the currency has faced considerable challenges in maintaining its value. The central bank has implemented various measures, including currency market interventions and monetary policy adjustments, to curb the depreciation. However, these efforts seem to have fallen short in the face of mounting external pressures and internal economic challenges.
Significant Threat to The Overall Economic Stability of Ghana
The situation poses a significant threat to the overall economic stability of Ghana. A depreciating currency can have far-reaching consequences, impacting inflation, interest rates, and the cost of living for the general population. Imported goods become more expensive, leading to an increase in the overall price level. This, in turn, puts a strain on businesses and households, affecting purchasing power and potentially leading to economic slowdown.
The central bank’s ability to address these challenges will be crucial in determining the trajectory of the cedi in the coming months. Policymakers must carefully assess the underlying economic factors contributing to the currency’s depreciation and formulate effective strategies to mitigate these risks. Collaborative efforts between the government, financial institutions, and other stakeholders will be essential to finding sustainable solutions.
The recent depreciation of the Ghanaian cedi against major currencies, particularly the US dollar, raises serious concerns about the country’s economic stability. The heightened demand for dollars ahead of the festive season has added pressure on the cedi, despite the efforts of the Bank of Ghana to intervene.
In addition to the domestic currency depreciation, the BoG also disclosed that in October 2023, the average lending rate in Ghana surged to 32.69%, equivalent to an average monthly rate increase of 2.724%.
The rate had previously declined from March to May 2023, remaining within the 31% range until September 2023. In February 2023, the average lending rate was 36.64%, decreasing to 35.87% in March. It experienced a sharp fall to 31.66% in April and 30.94% in May, with a slight increase to 31.5% in June.
Meanwhile, The Ghana Reference Rate stood at 31.09% in October 2023. The Monetary Policy Committee is expected to announce key decisions after today, November 27, 2023 meeting.
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