Despite all the gains the local currency made against its major trading currencies at the beginning of the year, especially the United States dollars, the impact of the coronavirus pandemic has washed all away, causing the cedi to lose its strength.
The cedi, which appreciated by 4.5 percent as of the end of February 2020, has seen a depreciation of 3.9 percent from the beginning of March to date (April 21, 2020), owing to reduction in exports, capital flights and high demand for the US dollar lately. At the beginning of March, the cedi was trading at GH¢5.296 to US$1, but now trading at GH¢5.514.
Finance Minister Ken Ofori-Atta said in March that the capital flight is as a result of “related bearish emerging market sentiments and given the high proportion (about 25 percent) of local bonds held by non-resident investors”, adding, this could seriously impact the foreign reserves of the country.
Prior to the negative impact of the pandemic, the local currency was tipped by many analysts to experience a better performance against its trading partners this year. Data Bank Research, for example, expressed confidence in the central bank’s FX interventions strategy and monetary policy decisions as key to maintaining the stability of the cedi.
Professor of economics and Director of the Institute of Social, Statistics and Economic Research (ISSER) at the University of Ghana, Prof. Peter Quartey, said the depreciation of the cedi is expected considering the pandemic has taken a heavy toll on trade globally. He, however, added that the US$1 billion Rapid Credit Facility from the IMF may help the cedi gain some strength.
“The exchange rate is an interplay between demand and supply of foreign exchange. For the supply side, because we are not exporting due to the closure of borders; and oil and other commodity prices falling, our supply of foreign exchange has gone down. Meanwhile, demand is increasing because people are converting their cedis to dollars with the hope that when the borders are open, they can now engage in trading,” he told local media B&FT.