Bloomberg pegs Cedi depreciation at 4.05%
Bloomberg has put the year-to-date depreciation of the cedi to the dollar at 4.05%.
Bloomberg’s year-to-date depreciation of the cedi is in contrast to the Bank of Ghana’s 2.6% year-to-date depreciation rate of the cedi.
The financial data firm in its assessment of the local currency ranked the cedi fourteenth (14th) among 20 top African currencies.
It however, classified the cedi among African currencies with the ‘Worst Spot Returns’ due to the intense pressure the local currency has come under in recent weeks.
A combination of factors including increased corporate demand for the US dollar and the exit of foreign investors in the country’s bond have put pressure on the local currency, lately.
The past week has been worst as the local currency lost more grounds to the dollar.
Despite a rebound in oil prices, amongst other exports commodities, it appears dollar inflows are not enough to stabilize the local currency.
Analysts want the Central Bank to up its intervention on the forex market to reduce the rate of depreciation, as foreign investors want faster pace of fiscal consolidation going forward.
Speaking to the media, Senior Economic Analyst with Databank Research, Courage Martey, said there haven’t been any significant appetite for the government securities after the presentation of the 2022 Budget.
“In fact, our gauge of foreign investor sentiment around the budget shows that a lot of foreign investors feel like that a faster pace of fiscal consolidation is necessary. However, they feel the revenue expectations are ambitious and for that matter they are very cautious on the outlook for the FX [foreign exchange] exposure they will take if they come into the local market now.”
“So generally, the supply side is also subdued by the perceived risk to the outlook and there is also elevated demand from corporate investors”, Mr. Martey explained.
“Overall, the cedi is still under pressure and might likely continue to experience this pressure till the end of the year. But we believe that the Central Bank’s regular interventions on the spot and forward market will be sufficient to prevent volatility. So that the depreciation pressures will continue to remain moderate till the end of the year”, he added.
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Meanwhile, the Zambian kwacha is the best performing currency in Africa so far this year. The Nigerian naira is however 13th, whilst the South African rand is 19th with a depreciation of 19.28%.
Currencies with “Best Spot Returns”
Currencies | Year-to-Date performance (%) |
Zambian kwacha | 19.14 |
Mozambique new metical | 16.48 |
Angolan kwanza | 9.34 |
Guinean franc | 5.73 |
Ugandan shilling | 2.52 |
Tanzanian shilling | 0.70 |
Egyptian pound | 0.04 |
Currencies with “Worst Spot Returns”
Currencies | Year-to-Date performance (%) |
Nigerian naira | -3.99 |
Ghana cedi | –4.05 |
Malawian kwacha | -5.50 |
Mauritian rupee | -7.09 |
Botswana pula | -8.44 |
Sierra Leone leone | -8.55 |
South African rand | -9.77 |
Ethiopian birr | -19.28 |
Cedi projected to depreciate by 13.3%; end 2022 at Ghs 8 to the dollar
In a related development, the local currency – Cedi – is projected to depreciate at a rate of 13.3% ending next year – 2022 – at a rate of Ghs 7.50 to the dollar or Ghs 8 in the worst case scenario.
This is up from the anticipated end-2021 cedi depreciation of between Ghs 6.50 and Ghs 6.70 to the dollar.
This is per the general concerns sampled from market experts and participants on the recent upward trend of the cedi witnessed in the last quarter of the year and going forward into 2022.
Making the assertion during the First National Bank’s virtual Economic Briefing and Post Budget Discussion on the 2022 Budget Statement, Head of Global Markets at the First National Bank, Kofi Pianim, noted the forecasted cedi depreciation rate will the result of a number of factors being the yields on government foreign bonds, shift in the seasonality of demand pressure on the cedi, coupled with the insufficient defense or support of the cedi by the Central Bank through its bi-weekly Forex auctions.
“In terms of seasonality, there has been a shift from September in which the cocoa syndicated loan as well as the Eurobond used to come in to help with the pressure on the cedi, that has changed over time and has now shifted to Q1. And we saw this trend change in September 2014 and is now more evident in 2019, 2020 and 2021 whereby the cedi in Q1 of the said years witnessed relative stability.
“The forecast for the cedi looking at seasonality, the Eurobonds that come to support the cedi, cocoa loans and also in the last month the BoG has sold over $700 million in auctions and will be doing $900 million by the end of 2021, but that won’t be enough to support the cedi.
“Speaking to market participants and experts, views trend in the same direction as the year end value of the cedi to the dollar is between Ghs 6.50 and Ghs 6.70 with the BoG Forex intervention minimising that to Ghs 6.30 at end-year.
“For 2022, the general concerns are about a Ghs 7.50 2022 end-year depreciation to the dollar and Ghs 8 in the worst case scenario which represents about 13.3% depreciation rate and given that the cedi was broadly stable amid the pandemic, I think one has to put into perspective that we are going through growth and there will be a bit of pain to bear but during the Covid crisis and the pain that was seamlessly alleviated through different activities from government, the BoG and market participants as a whole, if you are to distribute those benefits into the corrective measures and the positive posture the economy is now trying to take then that should not be bad [the depreciation rate] as that will put inflation somewhere around 12% which is where we are already heading towards,” he stated.
“We do believe there are ample reserves where we stand today, and we need to ensure that we maintain the positive balance of payments surplus posture and continue to improve import substitution so that we have enough means of defending the cedi,” he added.