Cedi Expected to Maintain Modest Stability Amidst Various Factors

Accra, Ghana – September 1, 2023; The Ghanaian cedi is anticipated to exhibit moderate stability in its exchange rates with major trading partners. This stability is attributed to a combination of factors, including recent coupon payments for new bonds, decreased import demands, and the provision of foreign exchange (FX) to the oil sector, which helps counterbalance increased demand from corporate entities.

Since the beginning of the year, the cedi has experienced a depreciation of approximately 22 percent against the U.S. dollar. However, it has managed to remain within a relatively stable range, fluctuating between 11.01 and 11.45 against the dollar in recent weeks.

Databank Research has pointed out the rise in corporate demand for foreign exchange over the past two weeks, temporarily straining liquidity in the market. Nevertheless, the cedi strengthened partly due to the Federal Reserve’s announcement of a cautious policy rate hike, which alleviated market uncertainties. Databank’s analysts have expressed optimism, stating, “While we anticipate increased corporate demand and potential offshore FX repatriation from coupon payments on the new bonds, we expect the GH¢ to find support from this week’s BDCs FX auction.”

GCB Capital, a market observer, acknowledges the ongoing strength of the U.S. dollar and tightening FX liquidity conditions as potential risks to the cedi’s stability. However, it remains hopeful about fiscal improvements and the recent coupon payment, which are expected to enhance market sentiment.

Notably, the Treasury settled the first coupon payment of approximately GH¢2.4 billion for new bonds under the Domestic Debt Exchange Programme two weeks ago. This development alleviated concerns about the government’s ability to meet its obligations, with a significant portion of the coupon payment, GH¢5.37 million, allocated to individual bondholders. Nonetheless, GCB Capital cautioned that the cedi remains susceptible to short-term shocks if FX liquidity conditions remain tight.

“The cedi remains vulnerable to immediate-term shocks, and it could face volatility in the week ahead if FX liquidity conditions continue to be constrained,” noted the research division of GCB Capital.

Meanwhile, analysts at Constant Capital have pointed out that the cedi benefits from reduced imports and lower demand pressure for FX. Currently, a significant trade surplus has boosted the nation’s current account, resulting in a surplus of US$849 million in the first half of the year, equivalent to 1.1 percent of Gross Domestic Product (GDP). This includes a year-on-year decline of 13.5 percent in imports, compared to a deficit of 1.5 percent of GDP around the same period last year. Constant Capital analysts anticipate certain expected FX inflows towards the year-end, including a US$600 million International Monetary Fund (IMF) disbursement and the cocoa syndicated facility.

“The local currency seems to be benefitting from reduced imports and lower demand pressure for FX, ahead of certain expected FX inflows towards year-end – the US$600 million IMF disbursement and COCOBOD debt syndication,” noted analysts at Constant Capital.

This overall sentiment aligns with AZA Finance’s prediction that the cedi will maintain relative stability, thanks to a consistent flow of forex to accommodate retail needs. “We expect the GH¢ to remain relatively stable with a steady flow of forex to accommodate retail needs,” stated AZA Finance in their analysis.

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