Bright Simons Attributes Persistent Cedi Volatility to Perverse FX Interventions by BoG
Perverse interventions in the forex market by the BoG, according to the Vice President of IMANI Ghana, Bright Simons, is a key driver of volatility in the Cedi in the long term.
Adding that, the practice leads to the mispricing of the Cedi.
“Perverse FX interventions in the market are a key driver of the long-run volatility of the Cedi in my humble view. Forcing the Cedi to misprice away from fundamentals sets the conditions for large returns by speculators who are then better resourced to persist. It also distorts demand planning for FX by those engaged in real foreign trade.
“The end effect is that adjustments become sharper, souring sentiment against the domestic currency. A similar thing happened during the famous “sell your dollars” saga. As analysts have warned in times past, an overvalued Cedi is just as problematic as a rapidly depreciating Cedi,” he remarked in a tweet.
Perverse foreign exchange (FX) interventions are actions taken by a central bank that can have unintended consequences, such as causing a currency to misprice itself. This can lead to increased volatility and make it harder for businesses to plan their foreign trade.
Mr Simons made the tweet in agreement with the assertion made by financial economist, Professor Lord Mensah, that the Cedi is now adjusting to its true market value after a series of manipulations by the BoG last year – 2024.
According to Professor Lord Mensah, the BoG in its efforts to curb the depreciation of the Cedi, sold over $200 million in the last quarter of 2024.
“The Cedi is now finding its level after it was manipulated to influence the election outcome. First-quarter seasonal demand has also set in. Likely to see some stability from March. There is the need to work quickly to reduce dollar demand activities by government and businesses,” he posited.
Meanwhile, the Cedi has recorded an average depreciation rate of 2.06% against major trading currencies—the US dollar, British pound, and euro—this January, according to data from the Bank of Ghana’s (BoG) January 2025 Summary of Economic and Financial Data report.
Depreciation rates for January 2025 stood at 2.4% against the US dollar, 0.8% against the British pound, and 3% against the euro.
For December 2024, the cedi ended the year with depreciation rates of 19.2% against the dollar, 17.8% against the pound, and 13.7% against the euro.
The Cedi currently trades at GHS 15.06 per US dollar, GHS 18.55 per British pound, and GHS 15.69 per euro, as per the BoG data.
