The Ghana cedi has maintained its dominance against its major trading partners, especially the US dollar, as market updates from the First National Bank show there has been a more than 6 percent appreciation of the local currency since beginning of the year.
From the report, since January 2020 the cedi has appreciated by 6.4 percent against the US dollar – a feat that has never been achieved in recent years. For example, at beginning of this year (January), the cedi was trading averagely at GH¢5.534 to US$1. However, as of Thursday February 20, 2020, it traded averagely at GH¢5.282 to US$1. Meanwhile, in January 2019 alone, the cedi had depreciated close to 3 percent against the dollar, and by 13.4 percent at the end of 2019.
The cedi, according the South African-based bank, is tipped to perform even better considering the BoG’s new FX auction strategy that seeks to pump some US$240million into the forex market during the first quarter, in addition to government’s planned 7-year bond auctions.
BoG’s FX forward auctions calendar seeks to simply reduce the incidence of speculation about the exchange rate. With this strategy, the Bank of Ghana (BoG) agrees with banks on a specific price it will sell the dollar to them within a certain period of time. What this means is that once banks are aware the BoG will sell FX at fixed prices within that period, there will be no need of a mad rush for dollars by banks because of an anticipated loss or increase in value of the exchange rate.
And per the FX forward calendar, the central bank is ready to inject US$80million every month within the first quarter to meet growing demand for dollars within this period. Every two weeks after, US$40million will be injected into the economy to shore-up the currency. Thereafter, when demand is no longer high (after the first quarter), with the exception of June 2020, US$50million will be injected every month. Cumulatively, BoG will inject a total US$715million into the economy for the whole of 2020.
The First National Bank report corroborates an earlier one by Data Bank Research, which expressed confidence in the central bank’s FX interventions strategy and monetary policy decisions as key to maintaining the cedi’s stability.
“We feel assured by the posture of monetary authorities in maintaining a broadly stable Ghana cedi in 2020. Our optimism is grounded in the Bank of Ghana’s bi-weekly FX forward auctions, which will deepen forward trading and limit spot market pressures.
“We view the higher-sized allotments for Q1-2020 as reflecting the Bank of Ghana’s commitment to increase forward activities in Q1-2020, when seasonal pressures tend to shock the spot market,” the Data Bank Research said.
According to the Data Bank Research, besides the forward market interventions, it also expects intermittent forex sales on the spot market to limit short-term volatility – thereby, forecasting the cedi to end the year with an interbank rate of GH¢6.05 to one dollar.