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The Ghanaian Cedi Fights Against the Buck and Prevails by 0.33%

September 11, 2021
Stephen M.Cby Stephen M.C
in Securities/Markets
0
The Ghanaian Cedi Fights Against the Buck and Prevails by 0.33%

Exchange rate appreciation

After days of losing against the U.S Dollar, the Ghanaian Cedi has finally mounted a spirited defense and managed to peep the American green note by gaining 0.33 percent to close the week.

The Ghanaian Cedi appreciated against the US dollar on Friday, September 10, 2021 to close at GHc6.04 per $1. Comparatively, the Cedi has gained GHc0.022 on previous day’s rate which closed at GHc 6.06, representing 0.33 percent appreciation.

In terms of performance for the week, over all, the Cedi depreciated by 0.32 percent, thereby, losing GHc 0.019 in the process. However, the narrative is different when looking at the Cedi’s monthly performance. The Cedi appreciated and thus, gained GHc 0.068 value against the dollar, representing 1.1 percent improvement on its monthly performance.

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Meanwhile, according to some experts, the interim appreciation of the cedi against the American Dollar, is because the foreign reserves of Bank of Ghana recorded a further boost. This was partly aided by the Bank of Ghana accepting in excess of $50 million of its weekly Forex Forward Auction, as against the target of $25 million. As a result, Bank of Ghana (BoG) is pumping more dollars into the economy.

Moreover, other analysts also suggested that the receipt of $1 billion Special Drawing Right (SDR) from the International Monetary Fund also shore up the foreign reserve in the economy which aided the cedi to appreciate.

However, dealers foresee volatility in the exchange rate in the coming days due to taper tantrum.

Cedis Appreciating Impact on Debt Servicing and Businesses

The local currency battle against the US dollar has always been one-sided – with the local currency’s struggles well documented.

It is almost certain that any news report on the cedi has always focused on how much of its value it has lost against the US dollar, though occasionally interspersed with bouts of positive performance.

Depreciation of the cedi is always a bad news for the economy especially the public debt. The Bank of Ghana’s latest debt figures show that the total public debt stands at US$334.78 billion out of which the external component is US$161.8 billion (made up of loans, bonds and other commitment borrowed in dollars and must be paid in same). The domestic debts on the other hand total $172.97 billion.

Whenever the government has to service any part of the external debt, it would have to source dollars at the prevailing rate to service the debt. Therefore, the higher the exchange rate, the higher the cost of servicing the debts and vice versa.

Consequently, the appreciation of the cedi will be a welcoming news for the government of Ghana. However, the question many people will be asking is whether the appreciation will be sustainable enough to have the desired impact on the debt situation in the country.

Also, there will be a marginal relief for business men servicing dollar loans, but earn their income in cedis. A key example is people who are servicing mortgage loans. Exporters and other people who earn income in dollars would, however, be reeling under the cedi’s new-found strength. Basically, it means that the dollars they earn would now offer them less in terms of cedis.

It is also expected that people who are using the dollar as a store of value will be looking to cut their losses and offload their dollars onto the market, and this will lead to even better performance for the cedi.

READ ALSO: Societe General Ghana declares GH¢0.114 as Dividend for the Financial Year

Tags: AppreciationCediDollar
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