AFTER eight straight months of depreciation, the cedi has begun to recover, appreciating by about 16% on the over the counter foreign exchange market.
The appreciation of the cedi against the major foreign currencies in the last few days has met mixed reactions from the general public, captains of industry as well as economic experts.
The cedi is now trading at between GH�3.20 at inter-bank rate and GH�3.35 at the actual market rate.
Consumers have heaved a sigh of relief upon hearing of the appreciation as they anticipated lower prices of goods on the market, which however has not happened, much to their disappointment.
Business operators and traders say they are not convinced of the sustainability of the cedi�s recovery and therefore do not expect significant change in the prices of goods and services.
They maintain that old stocks of goods cannot command reduced prices since they were procured at the old foreign exchange rates.
They point out that they would run at a loss of they should sell at reduced prices.
In frustration, government has indicated that its �hands are tied,� as traders and businesses fail to respond to the Cedi�s appreciation against the major trading currencies, especially the dollar.
This is because most of those goods were imported so they needed more cedis to buy the dollar during the local currency�s sustained depreciation and this affected the pricing.
Financial Analyst and Accountant, Mr Sydney Casely-Hayford, doubts the cedi�s reported appreciation.
�There�s no way a currency can appreciate as fast as our cedi has so my only interpretation of what we are seeing now is that it�s an artificial shrinking of the speculation value in the cedi,� he stated.
Mr Casely�Hayford insisted that the value of the cedi hadn�t changed despite the reported appreciation.
�All we have done is to come up with extra supply of dollars while the value of the cedi remains the same. Where is the purchasing power parity increase in what we are trying to do?� he wondered.
He maintains that �The only thing that has happened is that we have more supply of dollars.
The financial analyst recalled that there was widespread perception that the economy was going to collapse and there would be a shortage of dollars �so people were going in and buying dollars at whatever rate they could get.�
He noted speculation about the currency �is so rife, and everybody is so dependent on an imported dollar, you get the speculation going way beyond and in this case, hitting somewhere close to about a 100, 150 and sometimes 200% and that�s what you�ve got.�
Mr Casely-Hayford maintains that the cedi�s plight has been largely due to the actions of currency speculators who have sought to profit from the recurring macroeconomic misalignments, as well as market participants and ordinary individuals hedging against inflation.
He points out that at this time of the year, �we always get cocoa money and this time, we have a record amount of 1.7 billion dollars plus another option to bring in 200 million so there is certainly going to be a large amount of dollars which is going to be made available to the central bank.�
Concurring, the Deputy Minister for Finance, Mrs Mona Quartey explains that �we [Ghana] had the Eurobond issue which has brought some dollars into the system. Now just knowing that will come also took the panic out of the market and created an easy pack for the Cedi.�
Other factors that may have contributed to the cedi�s rebound could be Ghana�s engagement with the International Monetary Fund (IMF) over the bailout as some experts say it has brought some level of confidence in the market and helped the Cedi to appreciate.
Interestingly the head of research at Gold Coast Securities, Mr Sam Ampah is of the view that businesses can celebrate the cedi�s appreciation against the major foreign currencies.
�We can jubilate a little bit because we are getting some relief, businesses will smile at this moment that the cedi has been able to gain some value or appreciate against the dollar,� he told Accra based Joy Fm in an interview.
Traders according to him will not be the only ones benefiting from the gains, but individuals and businesses as well should be able to feel the impact of the stabilization.
Mr Ampah expects a reduction in the prices of goods and services but is quick to add that �this could have been more evident if prices of petroleum products had been reduced by government.�
As to whether customers can demand the reduction in the prices of goods on the market, the analyst is not definite �due to the unavailability of a price control regime in the country.�
�It is unfortunate we do not have the price control regime now but the point is that if we had that regime then maybe we could have had government coming in to enforce the reductions of prices on the market. But inflation rates should be able to tell us if there is a reduction in prices or not,� he stated.
He said if traders operate in a very competitive environment and are sensitive enough then competition should be able to force a reduction in the prices of goods and services on the market.
The Bank of Ghana (BoG) had in February this year directed that all local transactions should be made in the local currency to stop the cedi from further depreciating.
A week before the directive was given, one dollar was bought at GH�2.50 and sold for GH�2.60; One pound was bought at GH�4.50, and sold for GH�4.60, while one euro was bought at GH�3.70, and sold for GH�3.80.
However, while the directive was in force, the Cedi�s situation worsened as it fell by up to 40 per cent within the first half of the year.
Many experts have blamed the central bank boss for the decline of the Cedi while others including some Members of Parliament have called for the Governor of the Bank of Ghana, Dr. Kofi Wampah to resign but he has maintained that the cedi is not doing as poorly as many claim.
However, the nature of the cedi�s recovery appears to have vindicated Dr Wampah�s long held position that the cedi�s decline was as much the result of inordinate speculation as it was the result of weak economic fundamentals. Indeed it is instructive that the cedi �s appreciation began before the proceeds of both the latest Eurobond issue and this year�s cocoa loan syndication were received and used to shore up supply on the market. This evidences the fact that the cedi�s fortunes have been largely driven by confidence- -or the lack of it � in the cedi, which in turn has been driven by expectations of the availability of forex, rather than actual availability.
Simply put, when the cedi was depreciating, its fortunes were worsened by speculators who saw the need to demand forex as a store of value, even when they did not need it for any immediate transaction. Now the situation has reversed; people are now offloading their forex holdings since they are currently falling in value against the cedi, which is further shoring up the cedi.
Whether this is sustainable however will depend on the underlying fundamentals. To be sure the cedi�s sharp depreciation during the first half of the year has helped cut the merchandise trade deficit to a quarter of what it was during the corresponding period of last year by stemming the demand for imports. However it has not enabled non traditional exporters to increase their exports since it has been accompanied by a sharp rise in production costs.
Thus, beyond the use of the recent forex inflows from loans, the cedi�s fate will still depend largely on the international market prices for Ghana�s traditional exports � gold, cocoa and now, oil.
On the upside, the commencement of gas production will further reduce Ghana�s import bill and oil production from the next oil field will significantly increase export earnings. But on the downside, Ghana�s forex loan servicing obligations are approaching an all time high.
Thus Ghanaians should enjoy the cedi�s appreciation while it lasts; because there is no guarantee that it will last very long.
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