Cedi projected to depreciate by 13.3%; end 2022 at Ghs 8 to the dollar
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.
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Meanwhile, according to the Central Bank, the cedi has recorded a year-to-date (YTD) depreciation rate of 2.6 percentage points [15 pesewas] against the dollar – from January to November 2021.
The depreciation follows months of declining appreciation rate against the American dollar – from January to May when it posted an appreciation rate of 0.2 percent against the dollar.
In the month of July, the cedi depreciated by some 0.7 percent against the dollar, it further depreciated by 1.6 percent in August, by 1.7 percent in September and finally by 2.4 percent in October.
The depreciation of the cedi is despite the strong dollar reserves held by the Bank of Ghana (BoG) which is in excess of $11 billion as well as the weekly forex auction of dollars by the Central Bank aimed at ensuring that there is sufficient supply of dollars to businesses and hence less pressure on the cedi which usually result in the depreciation of the local currency.
Given the strong reserves of the BoG and its weekly forex auction, the depreciation of the cedi can be attributed to the strengthening of the dollar and increased demand for the American greenback on the back of increasing imports occasioned by the pickup in economic activities and gradual recovery of the economy from the Covid pandemic.