Currency analysts expect the Cedi to be relatively stable in last quarter of 2021
The cedi is expected by currency analysts to be relatively stable against the American greenback in the last quarter of 2021.
The anticipation of a relatively stable cedi is despite the expected pressures on the local currency as a result of high demand for the dollar by businesses for imports ahead of the Christmas festivities.
The local currency in the third quarter of this year posted a modest deprecation rate of 1.8% to the dollar, lower than the 2.96% depreciation rate recorded during the same period in 2020.
The 1.8% depreciation is the best performance achieved since 1992.
Senior Economic Analyst at Databank Research, Courage Martey, speaking in an interview on the stability of the cedi in the fourth quarter said, the local currency is well anchored despite some anticipated shocks.
“As we head into the final quarter of 2021, we are quite assured of continued relative stability but with a depreciation that will occur at a controlled or modest pace because already, we have a strong reserve buffer in excess of five months of import cover. And from October we should start to see the tranche disbursement of the $1.5 billion Cocoa Syndicated facility which will strengthen the cedi for the rest of this year. So generally, we are very positive about the cedi.”
“We do not expect that this inflow [cocoa syndicated loan] will translate into appreciation in the fourth quarter of this year. However, we think it will likely mitigate any potential shocks on the currency,” he remarked.
There are, however, some expected potential shocks mainly from foreign portfolio reaction to the development in the advanced market where the US and other European Central Banks have decided to begin their asset purchasing programme, starting from later this year.
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“Now that the interest rate of US treasuries is expected to rise and the implication on our market is that portfolio investors could start repatriating some of their dividends, some of their coupons and even liquidating some of their capital positions. And for the dollars to flow out that will create demand pressures on the foreign exchange market and cause depreciation pressure for the cedi. However, we believe that the inflow from the cocoa syndicated facility to boost the already strong reserves should provide enough buffer to see the cedi through the rest of this year,” he added.
Meanwhile, the cedi, out of the Continent’s top 15 currencies has placed 9th after slipping from its previous position as the 8th best currency on the Continent.
In August, the cedi was ranked 8th among Africa’s top currencies with a depreciation of 1.30% to the US dollar. This was after it had appreciated against the American ‘greenback’ in the first six months of this year.
The Namibian dollar however dislodged the local currency from the 8th position after an improved performance against the American currency in September 2021.
But the cedi is expected to gain some value to the US dollar soon. This is because the first tranche ($750m) of the $1.5 billion Cocoa Syndication Loan will hit the account of the Bank of Ghana this week. It will help reduce the recent pressures on the local currency.
