The Ghana cedi will continue to remain stable for the remaining part of the year, Databank research has said.
This is despite looming threats on the country’s currency ahead of the December polls emanating from possible foreign capital outflows and repatriation of profits – a usual occurrence during this period.
After appreciating against the dollar by 1.2%, 4.5%, and 1.7% in the first three months of the year, the cedi lost its impressive form and started depreciating against its major trading currencies.
This is after the coronavirus pandemic pushed foreign investors to withdraw their investments, especially in the money market.
The move resulted in a 4% depreciation against the US dollar in the second quarter, sparking fears that the trend will continue or even get worse for the rest of the year.
Strong performance
But surprisingly, as of the end of September 2020, its depreciation has slowed, recording just 2.9%, compared to 9.3% in the same period last year.
According to the Databank research, cumulatively, the cedi has depreciated by 0.5% in the third quarter.
The third quarter review and outlook report, says the relative good form of the currency is attributable to factors like the US$3 billion Eurobond issued before the COVID-induced tightening of financing conditions for emerging and frontier markets.
Also, the US$2 billion budget funding from multilateral institutions; stronger gold price due to the safe-haven appeal of the precious metal in uncertain times; relatively lower outflow on the services account, which helped to contain the current account deficit; and the Bank of Ghana’s introduction of bi-weekly FX forward auctions coupled with the implementation of the Refinitiv FX trading platform, which has enhanced FX price discovery.
The research firm says these, together with the central bank’s interventions, have made it revise its previous stance of projecting the cedi to hit GHC6 to a US dollar to GHC5.80 by the end of the year, despite election-year threats on foreign capital.
“Potential pressure points include adverse foreign portfolio reaction to political risks ahead of the 7 December election and the Treasury’s high financing needs and its attendant inflationary consequences.
“However, we view the bi-weekly FX forward auctions, supported by the healthy forex reserves, as a key anchor for the Ghana cedi over the short to medium-term,” the report said.
Earlier, Phillip Abradu-Otoo, director of research at the Bank of Ghana (BoG) said the bank has enough buffers to cushion the currency against any expected or unexpected external shocks for the remaining months of the year through to the first quarter of 2021.
“The central bank is well-positioned to deal with the pressures that will come. We are also expecting US$1.3 billion from COCOBOD; we are building up in reserves for this year which will provide some buffer to deal with unexpected eventualities; and the US$1billion line insurance from the FED, which has not been utilized will go a long way to provide calm in the markets in 2021.
“So I expect us to start 2021 with some sizeable build-up in reserves to be able to deal with the pressures that will likely come around in the first quarter of 2021. So our outlook is that the currency will continue to be stable even going into 2021. The outlook is positive and the cedi will hold firm going forward,” he said.
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