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The Cedi May Never Recover this Year from the Current Bouts of Depreciation- Analyst

February 28, 2022
Stephen M.Cby Stephen M.C
in Securities/Markets, Sub Top Stories1
0
Equities Tread Water as Policy Rate Remains at 28%, Financial Analyst Warns

Mrs Ruth Ofori, Financial Analyst, CEO of Lolyfx

Mrs Ruth Ofori, a financial analyst and the Chief Executive Officer (CEO) of Lolyfx LTD, has predicted that the Ghanaian Cedi may never recover this year from its current free-fall against the American greenback.

In an exclusive interview with the Vaultz News, the Lolyfx LTD CEO indicated that an advancement in trade and the voracious appetite of the Ghanaian populace for foreign goods is the cause of the sudden and continuous depreciation of the local currency. She thus, delved deeper into some remote and immediate causes of the excessive depreciation of the cedi in recent times.

“…The cedi recovering is relative, perhaps to what level specifically? But on the general outlook, I think the cedi may never recover this year from the sudden bouts of depreciation. Globalization has caught up with us all, with people sitting in the comfort of their homes and ordering goods and services from abroad. Our collective lifestyles as a country or citizens directly impacts the cedi. Talk of high debts, interest payments, dependency on foreign goods, imports, rising expenditure and so on. Think of it like gentrification; the masses move from rural areas, life takes an uptick, affluence sets in and cost of living rises. Everyone is essentially chasing foreign currency, say the dollar. That means demand rising, and hence the price of dollar rising higher than the cedi.”

Mrs Ruth Ofori
fall dip
The cedi continues to fall

The cedi went into free-fall against the US dollar last week, as it crossed the GHC7 mark, shedding more than a fifty Ghana pesewas (GHC0.50) in a span of one week’s trade. The dollar is currently being bought at the rate of GHC7.03 and sold at a rate of GHC7.16 on the forex market. However, the analyst laid the blame at the door step of the Ghanaian populace. She explained that the citizens attitude of quoting everything in dollar is the cause of the free fall of the local currency.

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“I don’t think the government is largely to blame, although the economy plays part. I think we as citizens need to do better. When we stop pricing our goods and items in foreign currency and stop charging for services in foreign currency, we can better utilize our cedi and make it regain some power by appreciating against other currencies”.

Mrs Ruth Ofori

Nonetheless, some observers have criticized government for not being consistent in encouraging local currency usage in the economy when it still collects some taxes, especially import duties in foreign currency.

Impact of the Depreciation of the Cedi

The analyst averred that the persistent weakening of the cedi will have devastating consequences on businesses and the economy as a whole. She noted that the continual depreciation of the cedi will increase the cost of doing business in the country and further burden Ghanaians as cost of imported goods will become expensive.

“The continuous depreciation of the cedi means business will incur most cost, especially for those who buy raw materials and other goods outside the country. Eventually, businesses will have to increase prices and fees, making their services and products more expensive. Increased prices will mean the average Ghanaian’s purchasing power will be reduced. In the end, business will produce at a higher cost but may not be able to sell at an increased price to recoup investment let alone seek profit”.

Mrs Ruth Ofori

Mrs Ruth Ofori moreover, warned that the cedi could plummet in the coming days as a result of Russia’s invasion of Ukraine. She believed that the ongoing war in Russia will further weaken the cedi.

220224 lugansk ukraine troops mb 1258
Military men on armoured tank

“The development has severely weakened the outlook on the cedi, given the threat of higher trade deficits and inflation posed by the hardening of oil prices and other commodities.

“The military conflict in Ukraine also led to a substantial strengthening of safe-haven assets such as the US dollar as investors rushed to dump riskier emerging market currencies.”

Mrs Ruth Ofori

However, the US dollar index, which measures the greenback against six major rival currencies, rose past the 97 points mark from 95.85 points since the war broke. The index last stood at 97.05 points.

READ ALSO: GIPC Expresses Worry over Ghana Losing Out on US$130 billion Chocolate Market

Tags: CediDollarGlobalizationMrs Ruth Ofori
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