Cedi Expected to Recover Amid Improved Investor Sentiment – Fitch Solutions
Fitch Solutions has projected a partial recovery of the Ghanaian cedi against the US dollar in the coming months.
The London-based financial analysis firm attributes this anticipated rebound to improved investor sentiment, increased dollar inflows, and easing external conditions.
In its recent report titled “Sub-Saharan Africa Currency Round-Up: Greater Stability Ahead in Second Half of 2024,” Fitch Solutions highlighted that Sub-Saharan African currencies are likely to benefit from supportive external conditions in the coming quarters.
Projected Gains in H2 2024
The report anticipates that the Ghanaian cedi will perform better in the second half of 2024. The cedi has depreciated by 19.2% against the US dollar so far this year, ranking it among the worst-performing currencies globally.
Weak market sentiment amid ongoing debt restructuring negotiations has dampened capital inflows, despite an economic recovery marked by a rise in real GDP growth from 3.8% in Q4 2023 to 4.7% year-on-year in Q1 2024.
Limited Forex Intervention
Ghana’s international reserves remain low, covering just 2.5 months of imports as of March 2024.
Coupled with agreements with the International Monetary Fund (IMF) to allow the exchange rate to adjust to market conditions, the Bank of Ghana has conducted limited foreign exchange interventions this year.
Predicted Recovery
Fitch Solutions forecasts a 9.0% recovery in the cedi’s value by the end of the year, from the July 9, 2024 spot rate.
This optimistic outlook follows Ghana’s recent agreement with international bondholders to restructure $13 billion worth of external debt, expected to conclude by the end of September 2024.
The successful restructuring is expected to bolster investor confidence, enhance capital inflows, and exert upward pressure on the cedi.
Monetary Easing in the US
Additionally, the anticipated start of a monetary easing cycle in the US in September is likely to weaken the dollar, thereby boosting investor interest in higher-yielding emerging market assets, including the cedi.
Currently, the cedi trades at GH¢15.75 at forex bureaus, reflecting a depreciation of approximately 20% against the US dollar. However, the expected economic and financial developments could see the cedi recoup some of these losses by year-end.
