Currency market experts are projecting that the current bearish performance of the cedi will endure until hard currency (HC) inflows materialise.
These anticipated inflows are expected to originate from the annual cocoa loan syndication, International Monetary Fund (IMF) and World Bank, boosting the country’s foreign exchange reserves and adding much-needed support to the currency.
In the past week, the cedi faced losses against major trading currencies due to limited support from the Bank of Ghana (BoG) in the foreign exchange market. Notably, it experienced a 1.99 percent week-on-week decline against the US dollar, settling at a mid-rate of 12.08 GH¢/USD by end of the week. Additionally, the GH¢/GBP and GH¢/EUR pairs also weakened by 1.02 percent and 0.79 percent respectively.
The cedi’s bearish trend, which has persisted for over three weeks, can be attributed to seasonal factors contributing to heightened FX demand pressures.
“Given the continuous rise in FX demand, it is likely that the local currency will remain bearish until hard currency (HC) inflows from the annual cocoa loan syndication, the IMF and World Bank become available. We anticipate that regulatory authorities will maintain vigilant oversight in the coming weeks to guide market behaviour,” noted GCB Capital, in its review of the previous week’s market performance.
The corporate demand for foreign exchange remains robust despite limited FX supply, exacerbating the domestic currency’s bearish performance. The Bank of Ghana responded by intensifying market surveillance during the week, leading to reduced trading activity.
The BoG also continued its intraday liquidity support, with a daily average sale of US$2.5million at approximately GH¢11.75. While the central bank has been actively selling US dollars to ease volatility, its resources are finite. The BoG’s continued vigilance and efforts to provide liquidity are commendable, but it can only do so much to mitigate the impact of high corporate FX demand and external pressures.
Although Ghana received assurances of debt restructuring from China and France last week, and witnessed a US$4.25million intervention from the BoG, these developments could not prevent the cedi from recording a weekly loss.
In anticipation of market dynamics for the upcoming week, Databank expects the currency to exhibit gradual movements as FX demand is anticipated to taper-off ahead of news related to the long-awaited US$800million cocoa syndication loan.
Databank also anticipates that the 39th bi-weekly Bulk-Oil Distributing Companies (BDCs) FX auction, scheduled for the coming week, will alleviate FX demand pressures and provide some support to the cedi.