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Prof. Gatsi casts doubt over EIU’s GHS 7.87 end-2022 cedi depreciation to dollar

3 years ago
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Prof. Gatsi casts doubt over EIU’s GHS 7.87 end-2022 cedi depreciation to dollar

The Dean of the University of Cape Coast Business School, Professor John Gatsi, has cast doubt on the accuracy of the projection made by the Economist Intelligence Unit (EIU) on the local currency.

According t him, discussions surrounding the currency’s stability can be held, but the EIU cannot indicate that this is the end of the erratic depreciation of the cedi for the entire year.

In its latest assessment of the Ghanaian economy, the London-based organisation indicated that the cedi’s recent depreciation against the dollar would cease till at least the end of the year.

It noted that the local currency will end the year at around GHS 7.87 against the dollar, indicating a slowdown in the cedi’s poor performance.

However, Prof. Gatsi disagrees with their assertion and projection made by the EIU.

“We cannot predict from now until the end of the year the shock that may affect the economy, whether from the domestic economy or the international developments.

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“We were not expecting that there will be some crisis between Ukraine and Russia. However, it happened, and it has its effect on the global economy and currency management, and we do not know what shock will come ahead of us,” he said.

The projected depreciation of the local currency against the dollar for the next eight months of this year, according to the EIU, will be influenced by the import structure of the economy and some actions of the offshore investors in Ghana’s bonds.

The cedi weakened sharply in the first two months of 2022, reflecting increased demand for hard currency due to a strengthening in Ghana’s (structurally import-dependent) business activity and profit repatriation by Ghana-based multinationals.

In a bid to stabilise the cedi, the Bank of Ghana announced foreign-exchange interventions, with $450m to be released via foreign-exchange forward auctions in the first quarter of 2022. As of early March, some $300m had been released.

The Unit said some further tightening by the Money Policy Committee of the Bank was needed to supply-side price pressures – including high utility and food prices, new taxes, rising global commodity prices and heightened freight charges, alongside supply-chain disruptions due to the Ukraine conflict, which are likely to keep inflation (especially fuel costs) elevated in 2022.

“We expect the headline inflation rate to remain high (averaging about 15%) throughout early 2022, driven by supply-side price pressures, including rising global oil and food prices—exacerbated by logistical bottlenecks related to the Russia-Ukraine war.—and high utility and transport costs,” said the EIU.

Average inflation will rise from 10% in 2021 to 13.4% in 2022 as prices for global commodities continue to increase, domestic demand starts to pick up further, and the currency depreciates sharply.

Inflation is forecast to average 8.8% in 2023-26, falling towards the lower end of the year.

This will reflect monetary tightening and weakening supply-side price pressures as the forecast period progresses, in part offset by ongoing local-currency depreciation.

Tags: Bank of Ghana (BoG)cedidollarEIUghana
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