The Ghana cedi has been one of the currencies on the continent that usually sees a depreciation against the dollar and other trading currencies. However, the country’s central bank has stepped in with proactive measures to stabilize the currency to help businesses. 

As part of measures to ensure the economy has a stable local currency for the year, and especially in the first quarter where demand for forex is high, the Bank of Ghana plans to inject a whopping US$775 million through its FX forward auction programme to achieve this course.

US$300 million in the first quarter alone

Out of this amount, US$50 million will be pumped into the economy bi-weekly till the end of the first quarter. Then, from the second quarter, it will be slashed by half till the end of the year. What it essentially means is that US$300 million will be injected into the economy to shore up the cedi in the first quarter alone.  

The data shows the strategy has started bearing good fruits as, since the beginning of the year to date, the depreciation of the cedi against the dollar has been very infinitesimal – recording less than 0.01 percent – using the mid-rate of the central bank as basis for computation.  

Performance of the Ghana cedi in 2021

Usually, with the exception of last year when the coronavirus pandemic halted international trade, which resulted in appreciation of the currency, the cedi sees a sharp depreciation in the first quarter each year mainly due to high demand for forex from importers to settle their bills.

Analyst with Data Bank Research, Courage Martey, sharing his thoughts in an interview with local media B&FT on how the cedi will perform against its major trading currencies this year, said the FX forward auction by the central bank is timely and appropriate and will go a long way to cushion the local currency as pressure from traders is bound to happen, especially when the economy seeks embarks on a recovery programme.

“The Bank of Ghana has issued the FX forward calendar for this year and what we notice is that for the first quarter of this year, they are seeking push US$50 million dollars every two weeks for the first quarter of this year; and this is two times the size they intend to allot after the first quarter. 

So we see a signal of firm commitment to support the cedi during the first quarter which is normally a difficult period for the cedi every year. And this has given us reason to be confident that in addition to the foreign inflows, the FX forward auction by the central will support the stability of the cedi in the first quarter,” he said.

On his general outlook for the cedi, Mr. Martey said despite lingering potential shocks, Data Bank Research projects the currency to be fairly stable, given signals from foreign investors and the US$5 billion Eurobond government plans to borrow from the international market.

Favourable anticipation concerning the cedi stabilization

“We anticipate a generally stable first quarter for the cedi. That is not without the potential shocks that could happen. We are not overruling the argument that a steady recovery in economic activity is going to increase demand for forex for international trade. We cannot also overrule the fact that we just emerged from an election and the potential liquidity overhung from the election is pending and so these dynamics could pose some shocks to the currency especially as businesses try to restock.

But then, we are also looking at other factors that could mitigate these risks. For instance, from the portfolio side, we are seeing increased foreign portfolio appetite for our local currency and securities and that is pushing some forex into the system. In the meantime, if this is sustained, it will help short-term supply of forex for the first quarter of the year. This is happening because the second wave of the pandemic is keeping interest rates lower longer than expected in Europe and America and so the search for higher yields is bringing investors back to our market.

We cannot also forget the government Eurobond, which is expected to come in the first quarter this year. This will strengthen the central bank’s coffers. So overall, we believe that the cedi will experience a relative stability for the first quarter,” he said.