Uncertainty Fueling Depreciation Of The Cedi

The decision by the Bank of Ghana to release about hundred and twenty million dollars into the economy has been lauded by General Manager of Gold Coast (GC) Brokerage as a step in the right direction.

“That should in some way help stabilize the cedi, because the rate at which it is depreciating is quite alarming”, the General Manager, GC brokerage told Winifred Ampiaw, host of the Business Africa Live Show on BTA.

He argued that, the cedi’s continues depreciation could also be attributed to the uncertainty of what the current governments’ policy would be towards businesses as well as government interventions.

“Because you know the depreciation of the currency has different factors that feeds into it”, Mr. Afreh said, adding that, uncertainty could be fuelling the down rating of treasury bills and interest rate.

Inflation

Figures from the Bank of Ghana as at first quarter of last year, indicated depreciation of the cedi by 1.4 percent compared with a depreciation of 11.2 percent recorded in the same period of 2015.

The structural challenges which confronted the Ghanaian economy in 2014 were considered mainly as the result of two-year lagged effects of policy decisions of 2011 and 2012, which necessitated the country’s engagement of the International Monetary Fund in 2014.

The primary objective of the program (Extended Credit Facility) is to lay some credence to the policy regime of the government in order to possibly boost investor confidence, whiles providing a sound regime of fiscal policy to consolidate the existing distortions in the economy.

Among all, the most significant economic challenge is the value of the Ghana Cedi (GHS) against other major trading currencies. For an import-driven economy, where virtually all consumables are imported from Europe, Asia, South Africa, and the US, with little trade within Africa, the Ghanaian economy and by extension the Cedi is theoretically vulnerable to fluctuations in the global financial and goods market.

 To support the growth of the economy in the recent rather short lived expansion, the government of Ghana has adopted expansionary monetary policy, just as fiscal policy. But with this expansion being artificial and foreign for that matter, triggered by a good outlook on commodity prices at the time and with the hydrocarbon industry, growth and value of the Ghanaian Cedi were waiting to implode.

GROWTH

Survey by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA), indicated, 40 per cent of respondents cited the negative impact of exchange rate movements, which reflects the volatility of the world’s major currencies. However, it is not all gloomy and despite these concerns, the global economy may be on course for growth in 2017.

Source: BTA