Currency analysts have warned that the cedi may suffer some level of depreciation if oil prices on the global market continue to fall.
The warning follows the continuous depreciation of Nigeria’s currency the Naira against major foreign currencies including the dollar and British pound for some weeks now.
Decline in oil prices
The naira’s depreciation has been mainly tied to the continuous drop in oil prices on the world market.
Oil prices have fallen sharply since late June,2014, losing around 30% as supplies increase and global demand for oil grows more slowly.
Brent crude, an international benchmark, fell 3 percent on Friday 28th November,2014 and was down another 1 percent on Monday 1st December, 2014 to $69.47 a barrel.
The recent slide follows OPEC’s decision last week to leave its production target unchanged.
Member nations of the cartel are worried they’ll lose market share if they lower production, which could have helped to push up the price.
But the drop in oil prices has had a negative effect on currencies of some countries including Nigeria, Australia and Russia whose revenue inflows depend on oil cash.
Naira crisis
Yesterday December 1st, 2014 the naira dropped the most since December 2011.
The decline came as oil, which accounts for 70 percent of government revenue, extended its drop since June to 29 percent.
According to Reuters the central bank of Nigeria has struggled to keep the naira within its preferred band even after devaluing the currency by 8 percent last Tuesday in a bid to halt a decline in the foreign reserves of Africa’s biggest economy.
Oil sales provide around 95 percent of those reserves.
The bank’s target band after devaluation is 5 percent plus or minus 168 to the dollar, but doubts remain about whether it went far enough given the likelihood of continuing low oil prices and the fact that Nigeria’s oil savings were being depleted even during a period of record high crude prices.
Impact of Naira crisis on the cedi
But currency analyst with Gold Coast Investments Limited Sammy Kofi Ampah fears the development may happen in Ghana.
According to him ‘what is happening in Nigeria can happen to Ghana, because our estimated oil revenue in terms of GDP is estimated to be at 3.9 percent year end, if the estimated oil price should fall on the international market to the estimated 50-55 dollars a barrel for 2015, its revenue implications will be that Ghana will not have the intended revenue it wants’.
He adds ‘this will affect our cedi in terms of our reserves because it will force our central bank to also come up to support demand for the forex and its implication is that it will put pressure on the cedi’. He said.
The cedi is currently enjoying some level of stability against major foreign currencies, having suffered some level of deprecation since the beginning of 2014.
Currency analysts had predicted the stability will continue well into 2015, but Sammy Kofi Ampah believes this may change if measures are not put in place to protect the cedi from the current development.
Earlier the Managing Director of the International Monetary Fund (IMF) Christine Lagarde said the plunge in oil prices may hurt some crude exporters, but it is overall a good thing for the world economy. “There will be winners and losers, but on a net basis it’s good news for the global economy,” she said.
Credit: citifmonline