Finance Minister Dr. Mohammed Amin Adam has announced an anticipated $1 billion boost from development partners by the end of the year, aimed at strengthening the economy.
This announcement comes on the heels of an earlier statement made by the Minister that the economy is “showing signs of recovery.” Notably, the Gross Domestic Product (GDP) exceeded its 2023 growth target by achieving a 2.9 percent increase.
Despite these positive indicators, the cedi continues to face depreciation pressures, with a 12 percent decline year-to-date.
However, Dr. Adam noted that this is a significant improvement to the nearly 30 percent depreciation experienced during the same period last year.
Moreover, local businesses’ sustained demand for the US dollar is putting increasing pressure on the local currency. Concerns about inflation persist, even as April 2024’s inflation rate dipped to 25 percent year-on-year, with food inflation falling to 26.8 percent.
Databank Research warns that the risk of rising inflation could lead to further increases in the overall inflation rate. This, in turn, might drive more speculative demand for the US dollar and further weaken the cedi.
The US Federal Reserve will announce the April 2024 inflation rate this Friday, Ma asy 17, potentially providing clues about its policy rate direction for the June 2024 meeting.
Databank Research suggests that a downward trend in US inflation could alleviate some of the cedi’s struggles. The local currency hit GH₵15 this week, prompting traders to pass on the increased costs to consumers, leading to a noticeable rise in the prices of goods and services.
Forex Rates Highlight Cedi’s Struggles
The Bank of Ghana’s interbank forex rates for May 17, 2024, show the Ghana Cedi trading against the dollar at a buying price of 13.7641 and a selling price of 13.7779.
Against the Pound Sterling, the Cedi is trading at a buying price of 17.4474 and a selling price of 17.4662. The Euro is trading at a buying price of 14.9673 and a selling price of 14.9822.
Moreover, the South African Rand is trading at a buying price of 0.7565 and a selling price of 0.7571. The Nigerian Naira is trading at a buying price of 110.3762 and a selling price of 110.8133. The CFA is trading at a buying price of 43.7824 and a selling price of 43.8260.
However, at a forex bureau in Accra, the dollar is being bought at 14.70 and sold at 15.05. The Pound Sterling is being bought at 18.30 and sold at 18.80. The Euro is being bought at 15.70 and sold at 16.30.
Also, the South African Rand is being bought at 0.40 and sold at 1.20. The Nigerian Naira is being bought at 9.00 Naira per Cedi and sold at 13.00. The CFA is being bought at 22.00 CFA per Cedi and sold at 24.50 CFA per Cedi.
Some economists have suggested converting the Central Bank into a Currency Board to stabilize the economy. In such a system, the local currency would be anchored to a foreign reserve currency, with a strictly fixed exchange rate.
Amid the rapid depreciation of the local currency against foreign trading partners, businesses are experiencing significant uncertainty and are calling for official intervention to address these challenges.
Importers are struggling, and retailers warn that they will pass these increased costs onto consumers, which is expected to drive up the cost of living and make it increasingly burdensome.
While assurances of fiscal support from the donor community offer temporary relief, it is crucial for economic managers to take steps to reduce the cost of living.
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