The Ghanaian cedi showed notable resilience in the forex market last week, gaining 1.44% against the US dollar to trade at GH¢15.58 on the retail market.
This positive performance reflects waning yuletide demand and strategic interventions by the Bank of Ghana (BoG). Analysts are optimistic that the local currency could sustain its gains, buoyed by easing demand pressures and seasonal liquidity.
The cedi’s appreciation was not limited to the US dollar; it also strengthened against other major currencies. It rose by 2.86% against the British pound and an impressive 3.70% against the euro on the retail market. These gains highlight the currency’s ability to recover in a market where forex availability remains thin.
The Bank of Ghana played a crucial role in stabilizing the forex market through its weekly foreign exchange auctions. Last week, the BoG sold US$20 million to Bulk Oil Distributors at a forward rate of GH¢14.7690 per dollar. This is slightly lower than the GH¢14.8133 per dollar recorded in the previous auction, indicating reduced demand pressures.
Impact of BoG’s Forward Sales
Without the BoG’s daily forward sales, the cedi’s week-on-week appreciation would not have been as significant. The auctions have been instrumental in meeting the forex needs of key sectors, particularly the energy and oil industries, while also cushioning the local currency against external shocks.
For the first quarter of 2025, the BoG has announced a consistent allocation of US$20 million per auction for the initial six auctions, totaling US$120 million. This strategic approach aims to provide market stability and predictability, further supporting the cedi’s performance.
Current Exchange Rates and Trends
Currently, the cedi was trading at GH¢15.75 against the US dollar on the retail market, while the BoG quoted GH¢14.71 on the interbank market. These rates signify a slight correction following last week’s gains but still reflect a stronger position than earlier in the month.
Despite last week’s positive performance, the cedi has faced challenges throughout the year, losing 21.58% of its value to the US dollar. However, the recent momentum suggests a potential turnaround, especially with seasonal demand pressures easing.
Factors Supporting the Cedi’s Recovery
The cedi’s improved performance last week can be attributed to several key factors, starting with the easing of yuletide demand. The holiday season typically drives up foreign exchange requirements for imports and travel, creating pressure on the local currency. However, as these seasonal activities wind down, the demand for forex subsides, allowing the cedi to stabilize and regain some strength against major currencies.
Additionally, the seasonal liquidity generated during the festive period has played a crucial role in bolstering the cedi. The inflow of remittances and other financial resources during the holidays has significantly enhanced Ghana’s forex reserves. This added liquidity has acted as a buffer, shielding the local currency from potential volatility and ensuring a more stable trading environment.
Another significant contributor to the cedi’s performance has been the Bank of Ghana’s (BoG) strategic interventions in the forex market. The central bank’s consistent auction of foreign exchange has been pivotal in meeting market demand. By providing a steady supply of forex, particularly to critical sectors like oil and energy, the BoG has effectively curtailed sharp fluctuations in exchange rates, thereby supporting the cedi’s resilience.
These combined factors—reduced seasonal demand, improved liquidity, and proactive central bank policies—have created a favorable environment for the cedi. Together, they highlight the importance of both market dynamics and strategic interventions in ensuring the stability of Ghana’s local currency.
Outlook for the Cedi
Analysts are optimistic about the cedi’s prospects in the coming weeks. The BoG’s foreign exchange auction calendar for the first quarter of 2025 provides clarity and confidence to market participants. With US$120 million allocated for the quarter, the local unit is expected to remain well-supported.
Additionally, the easing of seasonal forex demand is likely to create a more stable trading environment for the cedi. The local currency could benefit further from ongoing efforts to enhance forex liquidity, including targeted interventions in critical sectors like oil and energy.
Despite the recent gains, challenges persist. The cedi’s 21.58% depreciation against the US dollar this year underscores the vulnerability of Ghana’s economy to external shocks and structural inefficiencies. Persistent trade deficits, high public debt, and global economic uncertainties remain significant risks.
Furthermore, with the US Federal Reserve maintaining a hawkish stance, the dollar could strengthen, putting renewed pressure on the cedi. Ghana’s policymakers will need to balance forex interventions with broader economic reforms to ensure sustainable currency.
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