Wednesday, 2 May 2012

Ghana: Cedi remains under pressure

The Ghana cedi fell further against the US dollar which has led to illiquidity on the interbank market with hardly any activity late last week. As reported in Ghana Politics & Security last week the cedi has declined steadily over the past few months, falling more than 11% this year, because of strong demand for the US$, in most part from local manufacturing and telecommunications firms. Three weeks ago the Bank of Ghana raised its policy rate to 14.5% in an attempt to stem the cedi's slide and also slackening the banks' net open position requirements - the difference between their assets and liabilities in a particular currency - to boost their foreign exchange flows to the market.

The Central Bank announced further measures on Sunday 29 April to help stabilise the cedi. In order to strengthen the government's monetary policy and restore stability and transparency in the foreign exchange market the Bank had decided to reintroduce 30, 60 and 270-day bills; a requirement that banks hold the obligatory 9% reserve requirement on domestic and foreign deposit liabilities in cedis only; and the requirement that banks provide 100% cedi cover for vostro balances. The requirements came into effect on 1 May.

The continuation of the depreciation of the cedi against the dollar could force the government to increase fuel prices, because Ghana imports both crude and refined oil. National Petroleum Authority (NPA) CEO Alex Mould said: “If we don't pass it on to consumers then government will have to forego some projects… We have also experienced crude oil prices above US$120 per barrel… and also the exchange rate has increased and we should have experienced an increase in petrol prices of over 20%-22%, but that did not happen because the government decided to subsidise it.”

According to Databank's Africa Quarterly Report, which ranks the performance of Africa's stock markets in terms of returns to investors in dollars, Accra had Africa's third worst performing market for the first quarter. The Ghana Stock Exchange (GSE) ranked third after Mauritius and Zambia.

Databank's head of research, Nii Ampa-Sowa, said that poor market performance was due to the cedi's decline and told Joy FM that “As a global investor you come in with dollars which you would convert to cedis and then you would invest here. But if you were to take your money out of the Ghanaian market it would mean that you would sell the cedi denominated investment and then repatriate that money. But in taking it outside the country, you would have to change back the cedi into dollars. Meanwhile, in dollar terms the money has actually declined.”

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2012 Menas Associates

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