The current depreciation of the cedi can be attributed significantly to dividend payments and profit repatriation by multinational companies, as they fuel unprecedented demand for the dollar in corporate circles. This surge in demand has led to a sharp depreciation of the cedi in April.
Since the beginning of the year, the cedi has lost over 13.35% of its value, with a 3.6% depreciation recorded in April alone, on the retail market. Consequently, the dollar is now being traded at around 14 cedis on the interbank market and even higher at 14 cedis 20 pesewas at forex bureaus.
Following a period of relative stability towards the end of the first quarter, the local currency has experienced a consistent decline in April. Traditionally, the first and second months of the year witness significant cedi depreciation due to debt repayments by traders who imported goods on credit during the festive season, and foreign investors cashing out on the bonds market. However, the slowdown in Ghana’s bonds market activity due to debt restructuring mitigated some pressure during this period. Nonetheless, the second phase of cedi depreciation typically occurs in April and May.
Market analysts attribute the current trend to many companies, after holding their Annual General Meetings in March, now disbursing dividends to shareholders. This trend is particularly pronounced among multinational companies and indigenous firms with foreign shareholders, as they scramble to secure dollars for profit repatriation. The heightened demand for dollars from these entities has exacerbated pressure on the cedi, leading to its recent depreciation.
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Moreover, companies that have taken foreign loans are aggressively acquiring dollars to meet their repayment obligations. Additionally, investors who have divested from businesses including one in the telecommunication sector, are cashing out and seeking dollars for fund repatriation.
Market experts anticipate that unless the Bank of Ghana intervenes by increasing dollar supply, the cedi will continue to depreciate until June, by which time most companies would have completed dividend payments. Despite the central bank’s sale of $13 million on the spot market, last week, it was insufficient to stabilise the cedi, which ended the week with a 0.90% depreciation against the US dollar on the retail market.
Outlook
The pressure on the cedi is expected to persist throughout May, gradually easing in June. Some degree of stability is anticipated between June and August before resuming when importers begin placing orders for the festive season. However, market watchers caution that the importation of goods for political campaigns could pose a threat to cedi stability, depending on the timing of heightened campaigning activities.
Another risk to anticipated cedi stability from June onwards could arise from potential delays in the disbursement of the next tranche from the International Monetary Fund (IMF). While the IMF is scheduled to release approximately $600 million in June as part of its bailout programme for Ghana, concerns over delays in reaching a signed agreement with international creditors regarding debt restructuring, as well as meeting IMF targets, may lead to uncertainties that could prolong cedi depreciation into June.
