The successful progress made by Ghana in her negotiations with bilateral creditors has resulted in the cedi continuously gaining ground in the foreign exchange market.
Available data shows that the domestic cedi rallied against its major trading currencies last week on the interbank market.
The local unit gained 0.77% w/w (weight for weight) against the American greenback, ending the week at GHC10.93 per dollar.
Similarly, the British pound and the euro both lost 0.19% week-on-week to the cedi on the interbank market. On the spot market, the cedi gained 5.99% w/w against the dollar to trade at GHC10.85, reducing its year to date (YTD) loss to 1.20%.
Aside from the central bank’s interventions and lower demand for the cedi, Constant Capital – a market observer, believes that commitments from the Chinese government to help Ghana restructure its bilateral US$1.7 billion debt to the Asian giant also aided in the domestic currency’s recent strength.
Separately, the Bank of Ghana plans to hold its next Bulk Oil Distribution Companies (BDCs) auction on the 13th April, 2023, when US$20 million will be on offer.
Further to this, positive news from the bilateral creditors meeting scheduled for yesterday, 11th April, 2023, is expected to further support near-term cedi performance.
“We believe that recent strength seen in the cedi will be sustained, possibly improved over the course of the year, on a host of fundamental factors – FX relief from a smoother amortization under the potentially restructured Eurobonds portfolio, possibly large upfront disbursements under the International Monetary Fund (IMF) extended credit facility programme, and likely expansion of the trade surplus at the central bank.”
Constant Capital
Analysts Disclose Other Factors That Has Contributed To The Strengthening Of The Cedi
AZA Finance also shared a similar view that the positive sentiment regarding progress on the debt restructuring programme has supported the cedi.
The gains were largely due to the increase in liquidity in the market, following the Bank of Ghana’s intervention with US$3 million in the spot market and US$20 million for BDCs.
The Finance Minister, Mr. Ken Ofori-Atta remains hopeful that a meeting between the country and China will conclude positively, providing Ghana with enough debt-relief to attain the needed IMF board-level approval.
The country is expected to restructure all its debt in the coming weeks to pave the way for the state to submit its economic programme in order to secure the IMF deal by the middle of second quarter 2023.
The progress of negotiations will continue to impact market sentiments, with analysts projecting a mixed performance for the cedi this week.
Market observers have noted that the cedi has performed relatively well despite weak fundamentals.
After kicking off the year on a weaker foot against the US dollar and other major trading pairs, the currency’s strong performance has been largely due to anticipated seasonality effects in Q1 2023, amid a weaker foreign exchange reserve position and the highly bearish end to 2022.
However, the Bank of Ghana has tightened market spreads and quelled speculation, which has so far helped to support the cedi’s performance.
Export receipts have also contributed to driving a year-on-year surplus for the merchandise trade account, which has helped to maintain the local unit’s resilience in the foreign exchange market.
The step forward in negotiations with China has brought the country closer to securing IMF Executive Board approval, with official start of the IMF programme expected to unlock a balance of payment backstop to support the currency’s resilience in the second half of 2023.
However, the currency’s long-term resilience will depend on the success of negotiations with China and the IMF, as well as the country’s efforts to restructure its external debt.
Read also: Fear Of Disappointment In Ghana’s IMF Deal
