Bloomberg has predicted the Ghanaian Cedi to depreciate further against major currencies, especially the dollar in the coming months as the country continues to face worsening economic conditions.
According to Bloomberg, it’s analysis and charts showed risk of double-digit drop for the cedi in six months. Meanwhile the organization analysed 28 years of data before arriving at this conclusion.
“Ghana’s currency is trading near a record low and a long-term momentum indicator shows it’s at risk of further depreciation.”Bloomberg
The cedi has lost 18 per cent against the dollar this year alone, making it the worst-performing currency in Africa after Zimbabwe’s dollar. However, the situation is far from over as a 28-year analysis of the Relative Strength Index (RSI) predicted tuff time for the West African power house.
Bloomberg noted that, looking at the Relative Strength Index, which measures the rate of change in prices over a period of time, “shows the pain may be far from over.”
The Cedi Nears a Record Low
Last month, the Relative Strength Index of the cedi rose to over 90, which is significantly above the 70 level that is considered an overbought threshold.
“In the past, whenever the measure has topped 90, the cedi has dropped as much as 24 per cent on an average over the next six months. That’s bad news for an economy battling the highest inflation rate in more than 12 years and worsening business sentiment because of rising fuel prices.”Bloomberg
This prediction came on the back of rising fuel costs pushing producer inflation to seven-year high.
“A depreciating currency will add to the import bill of the West African nation that purchases most of its fuel from overseas. Annual producer inflation accelerated at the fastest pace in seven years in March to 29.3 per cent, stoked by increases in energy, food and beverage prices, partly due to the cedi’s decline.”Bloomberg
According to the Central Bank’s March 2022 Summary of Economic and Financial Data, the local currency lost 0.3% and 9% in value to the American currency in January 2022 and February 2022 respectively.
The free fall of the cedi has triggered calls for an increase in the policy rate to attract cedi-denominated assets to stem disinvestments from the money and capital markets by some Economists, Analysts and Research Institutions.
Despite the situation, the Economist and Intelligence Unit (EIU) has projected the Cedi to end the year 2022 at GH¢7.87 against the United States dollar.
On the face of the damning depreciation of the cedi coupled with inflation, the narrative is different back home as the government continues to add more debts to the country’s debt stocks in a bid to arrest the cedi while at the same time blaming its economic woes on the Russia Ukraine war.
Almost eight weeks after Vladimir Putin sent troops into Ukraine, with military losses mounting and Russia facing unprecedented international isolation, with many economies facing the brunt, Russia’s embassy in Ghana came out to rubbish claims that the war is responsible for Ghana’s worsening cedi depreciation.