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Cedi Continues to Weaken Despite Bank of Ghana Intervention

Market analysts suggest that the BoG may be limited in its ability to inject more dollars due to the need to maintain its reserves.

Despite the Bank of Ghana (BoG) injecting over $95 million into the interbank forex market last week, the cedi continues to lose value against the dollar. The Central Bank’s intervention from Tuesday to Thursday last week temporarily slowed the cedi’s depreciation, but the absence of further support on Friday caused the dollar to surge when trading resumed on Monday, May 20.

On the forex bureaux market, the dollar was selling above GH¢15.15, while on the interbank market, it opened trading between GH¢14.45 and GH¢14.60, up from GH¢14.40 and GH¢14.55 on Friday, May 17. By 2:30 PM on Monday, there had been no further dollar injections from the Central Bank, sustaining the high demand for the dollar.

Market analysts suggest that the BoG may be limited in its ability to inject more dollars due to the need to maintain its reserves. The Bank aims to keep its reserve cover between 3 and 3.5 months of imports, as required by the International Monetary Fund (IMF). As of February, the Gross International Reserve stood at 2.8 months of import cover, falling short of the IMF target. This relatively low reserve limits the Central Bank’s capacity to sell more dollars without depleting its reserves. “These reserves are what the regulator uses to provide liquidity support to the USD/GHS pair, and their hands are currently tied due to the IMF’s ECF program that Ghana has entered into,” Currency Trader Kojo Dziwornu Letsa told the Accra Times.

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There are concerns that a prolonged absence of BoG intervention could lead speculators and businesses to panic, driving them to buy dollars as a store of value amid rising inflation, exacerbated by increasing fuel and transport costs. This could trigger another period of rapid cedi depreciation.

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Market watchers expect the Central Bank’s Monetary Policy Committee (MPC), which begins its next meeting on Wednesday, May 22, to adopt alternative measures to either reduce dollar demand or increase demand for the cedi to mitigate the depreciation. Previously, the Central Bank would issue cedi-denominated bonds to attract foreign investors, who would convert dollars to cedis to purchase the bonds. However, the regular issuance of bonds has been halted due to the debt restructuring programme.

Given the current situation, it is highly likely that the MPC will keep the policy rate unchanged at 29%, despite calls from some prominent economists to lower it.

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