The Bank of Ghana (BOG), has stepped up its supply of US dollars to meet daily demands for foreign exchange as global pressures and the exit of investors from emerging markets cause the cedi to depreciate.
According to a source at the bank, the Central bank had sold $157 million to banks this month (September), while last month, it pumped in $283.4 million.
The move is to stem the growing depreciation of the cedi, which has dropped by 6.9% this year (2018), more than the cumulative depreciation of 4.7% for the whole of 2017.
The cedi, which was trading at GH¢4.42 to the dollar in January this year, is now valued at GH¢4.8 to the dollar at the inter-bank rates but is trading at GH¢4.94 at some Forex bureaux in Accra.
But a Deputy Governor of the BoG, Dr. Maxwell Opoku Afari, said the Central Bank has increased its daily supplies to the markets as part of the cash flow to meet adequate demands.
“We have enough stock of dollars to meet daily demands, and we have already supplied to meet investor and corporate demands,” the deputy governor said.
Ghana’s International Gross Reserves currently stands at $6.9 billion, which covers 3.7 months of imports.
Checks by source at some banks in Accra yesterday (September 11) and last Friday (September 7) showed that the banks were selling dollars to customers with no indication of dollar shortage.
$1.3b cocoa inflows
The country’s total domestic debt stock is GH¢73.7 billion, of which only 37.9 per cent is held by non-residents.
Additional inflow of $1.3 billion from cocoa syndication in October is expected to further cushion the country’s foreign reserves and help shore up the cedi.
Accumulated semi-annual and annual payments on the country’s public debt, which fell due recently, have given the forex markets the jitters because of the outflows involved. While all these are indeed factors that are contributing to the cedi’s ongoing travails, the primary reason lies far beyond the country’s shores, Dr Afari said.
The recent interest rate hikes by the Federal Reserve Bank of the US have signalled the end of monetary easing introduced at the turn of the decade to reverse the global economic recession of that time.
Higher US interest rates have made America more attractive to international investors and consequently have strengthened the US dollar tremendously against virtually every other currency in the world.
Major setback
A Senior Economist at Databank, Mr Courage Kingsley Martey, said the cedi’s vulnerability to external shocks had been a major setback this year given the substantial amount of foreign investor participation on the country’s domestic bonds market since 2017.
“Because yields were high and were expected to decline over time, what we saw was a substantial inflow of foreign portfolio investment.
“These investors sought to take advantage of the price appreciation on our local bonds market when yields started to decline.
“And so when the government commenced aggressive issuance of longer-dated bonds since 2017, we witnessed a surge in foreign investor participation from GH¢14.25 billion in January 2017 to GH¢32.38 billion. That is over 127 per cent increase in foreign capital inflow within 15 months,” he added.
Interest earned
Interest earned on the country’s bonds dropped to 15 per cent from the heights of 20 per cent and with expectations of a faster rate of increase in US interest rates, investors began to gravitate towards the US markets.
Between April and July 2018, foreign investors had sold off close to GH¢4.5 billion of their position on the bond market in demand for foreign exchange.
“This kind of shock is always going to exert unbearable pressure on the Ghana cedi,” Mr Martey said.
