"Capital Reserve Ratio hike has slowed cedi\u2019s depreciation \u2013 Absa"

" \n Capital Reserve Ratio hike has slowed cedi\u2019s depreciation \u2013 Absa \n \n\n \n Acting Head of Markets at Absa Bank, Jacob Brobbey, has described the Bank of Ghana\u2019s decision to increase the capital reserve ratio (CRR) to 12 percent as timely in stemming the local currency\u2019s descent in second quarter of the year. \n \n\n \n The central bank, in March, announced an upward adjustment of the ratio by 4 percentage points to 12 percent, surpassing the pre-pandemic level of 10 percent, effective April 1. \n \n\n \n The CRR is a fraction of commercial banks\u2019 total deposits which are kept in their accounts with the central bank. It serves as a buffer \u2013 particularly in the event of large-scale, sudden withdrawals by customers \u2013 as well as a monetary policy tool to control the amount of cash in the system. \n \n\n \n Speaking during a recently-held UPSA Law School Quarterly Banking Roundtable, which had as its focus Monetary Policy, Central Bank Leadership and Stability of the Cedi , Mr. Brobbey suggested that the move proved a stroke of genius on the part of the central bank \u2013 as a number of factors, including dividend payments and repatriations, were bound to exert more pressure on the cedi and induce further decline. \n \n\n \n \u201cA great positive from the move by the BoG was that \u2013 at the time in the first quarter \u2013 the cedi had been perhaps the worst-performing currency across the globe, except the Russian ruble. But since the introduction of this measure, particularly in April, the currency gained against its major trading partner and has seen improved stability compared to just before,\u201d he explained. \n \n\n \n This is consistent with projections by a number of analysts, including those at asset management firm Databank. In its \u20181Q22 Ghana Markets Review & Outlook for 2Q22\u2019 report, Databank projected that the tighter local currency liquidity condition will curb forex demand and slow the cedi\u2019s depreciation, as well as make a modest correction in the exchange rate in quarter-two. \n \n\n \n Official figures indicate that the cedi declined against its major counterpart \u2013 the US dollar \u2013 by 15.6 percent in quarter one. This was a significant deterioration compared to the entire year of 2021 at 3.93 percent. The cedi further declined by 3 percent in April; slower than it had in previous months. \n \n\n \n Industry impact \n \n\n \n On the flip-side, the reserve ratio had a number of direct implications on the banking sector as approximately GH\u00a24.9billion \u2013 which could have been used by universal banks to underwrite credit or invest \u2013 was withdrawn from the system into the central bank\u2019s coffers. \n \n\n \n This, Mr. Brobbey said, was largely responsible for the 5 percent decline in the industry\u2019s cumulative investment \u2013 from GH\u00a288.5billion to GH\u00a283.9billion between April and May. In addition, the tighter liquidity conditions were priced into the benchmark Ghana Reference Rate (GRR), which stands at 20.8 percent for June. \n \n\n \n Offering expectations for the cedi\u2019s direction relative to other currencies, the Absa Head of Trade said he foresees a \u2018moderate\u2019 decline for the rest of the year \u2013 as the introduction of a US$1billion facility by the fiscal authority and arrival of the cocoa syndicated loan later in the year are countered by a further increase in economic activity. \n \n\n \n \u201cIn terms of the massive FX depreciation, I would say we are probably out of the woods for now. I still see it depreciating moderately till end of the year, due to elevated economic activity as opposed to at the height of the pandemic,\u201d he stated. \n \n\n \n FX policy review \n \n\n \n As an additional layer of support for the cedi, he recommended a review of the Foreign Exchange Act 2006, arguing that some of its provisions might not be fit for purpose as it\u2019s been more than a decade. \n \n\n \n Of particular note, he said, the current framework with minimal requirements for the ownership of a foreign exchange account is far from ideal. \n \n\n \n \u201cFor instance, it makes room for Ghanaians whether into business or not to be able to own a foreign exchange account\u2026 There is a school of thought that believes this contributes in the large numbers we see in banks\u2019 balance sheets as foreign currency liabilities. It is something that we should look at,\u201d he emphasised. \n \n\n \n Mr. Brobbey added that the current regime favours big businesses in obtaining foreign exchange over their SME counterparts. \n \n\n \n The event was moderated by Robert Dzato, Member, Chartered Institute of Bankers, Ghana. \n "

"Capital Reserve Ratio hike has slowed cedi\u2019s depreciation \u2013 Absa"

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