The leadership of universal banks in the country and the Association of Forex Bureau Operators have agreed to work in close collaboration to stem the rapid depreciation of the Ghana cedi.
This is the outcome of a high-profile meeting between the Bank of Ghana (BoG), leadership of universal banks and Association of Forex Bureau Operators.
First of series of engagements
The meeting, the first of series of engagements brought together stakeholders within the foreign exchange market to deliberate on how to streamline, sanitize and provide clarity on the supply of forex in the country.
Foreign exchange market volatility
In his opening remarks, BoG Governor Dr. Ernest Addison said BoG is poised to work with relevant stakeholders to stabilise the foreign exchange market and help contain the fall in the value of the cedi.
GH₵6 to the dollar in January
He said available data indicate that the exchange rate started the year at GH₵6 to the dollar.
GH₵12. 5 to the dollar currently
“It got to GH₵7 and we stayed at GH₵7 in June, GH₵7.6 in July, GH₵8 in August, GH₵9.6 in September and now it is GH₵12. 5.
Speculator quoting GH₵15 to a dollar
“But, we are here again with people sending messages that the dollar cedi rate is GH₵15 to a dollar.
“Clearly this type of movement does not deflect changes in the fundamentals.
“It is clear that the market is not functioning properly.
“We are seeing speculations taking over under very disorderly market conditions and it appears now the black market is rather driving exchange rates.
“This we cannot allow to continue,” he said.
Global economic meltdown factors
Dr. Addison acknowledged the global economic meltdown occasioned by the geo-political tension between Russia and Ukraine has caused supply-demand imbalances in several commodity markets, high inflation, high-cost of living and high uncertainties in financial markets as causing to the financial challenges facing the country
Present at the meeting were Managing Directors (MDs) of Ghana Commercial Bank (GCB), Fidelity Bank, Ecobank, Societe General, Absa, Stanbic, First National, Bank of Africa among others as well as heads of the Association of Forex Bureau Operators.
Array of issues raised
The leadership of the banks blamed the rapid depreciation of the cedi to a wide array of issues.
Uncertainties surrounding the future of Ghanaian bonds
Most prominently, they attributed it to the uncertainties surrounding the future of Ghanaian bonds.
IMF engagement increasing debt sustainability speculations
They said the ongoing discussions between government and the International Monitory Fund (IMF) for a $3 billion loan facility is increasing speculations over Ghana’s debt sustainability status.
Investors ditching losses
Though the Bretton Woods Institution has maintained that any talk of debt restructuring is dependent on an ongoing the report to be produced from ongoing Debt Sustainability Analysis (DSA), investors according to the banks have begun cutting their losses and moving their investments into safe havens, a move that is contributing to the rapid depreciation of the local currency.
Regularizing forex brokers
They called on the BoG to employ adequate mechanisms to regularize forex brokers in a way that will ensure their efficient supervision and prevent the sale of foreign currencies at exorbitant prices.
Interbank market to take full control
This Dr. Admission assured the leadership that BoG is taking steps to restore order in the forex market by making sure the interbank market takes full control of the forex market to enforce regulations surrounding forex trading so as to streamline the supply of forex in the country.
Members of the Association of Forex Bureau Operators commended the Central Bank for its role in clamping down on illegal forex dealers also known as “Black Market” in a move to sanitize the sector and ensure licensed forex operators deal in exchange transactions.
This the Governor tasked the association to be law compliance and cautioned them to desist from determining forex rates which has contributed to the speculation of rates thus creating unnecessary panic in the market.
$1.13bn COCOBOD loan
Ghana Cocoa Board (COCOBOD) signed a $1.13 billion syndicated loan with international banks to finance purchases for the upcoming season, which is due to open later this month and expected to support the cedi.
Cedi loses over 60% value
The Cedi has lost more than half of its value from January this year to date, with some estimates pegging the depreciation at over 60%.
Interbank forex rates
It Cedi has tumbled rapidly on the Interbank forex rates, trading against the US dollar at a buying price of GH₵12.5244 and selling price of GH₵12.5370 on Monday, October 24, 2022.
But, the rates at forex bureaus and illegal black market are higher than these interbank rates.
Minister of Information, Kojo Oppong-Nkrumah, disclosed this in separate media interviews.
Fiscal challenges
The free fall of the cedi is a consequence of Ghana’s current fiscal challenges that have led to a massive exit of portfolio investors who are dumping the currency and bonds.
Macroeconomic instability
Ghana faces macroeconomic instability, with an inflation rate of 37.2%, against a target of eight percent with a bandwidth of two percent.
BoG intervention
Despite BoG raising its interest rate to a record high of 24.5% in an effort to reduce inflation and strengthen the Cedi, the currency continues to fall.
Some Ghanaians hoarding dollars
Some Ghanaians are exchanging the cedi for dollars as a store of value, fearful of what is to come and of further cedi depreciation and this is also piling more pressure aiding further depreciation.
Ghana seeks $3bn IMF bailout
Ghana is before the IMF for $3 billion balance of payment support to help the country navigate through the hostile economic crisis it finds itself in as a result of the adverse effects of the deadly coronavirus pandemic and the ongoing conflict between Russia and Ukraine.
The loan is to support the government’s Enhanced Domestic Programme, which is to help the country navigate through the current economic hardship and improve its fiscal balances sustainably.
Ghana, just like many other countries the world over, is experiencing economic hardship largely due to Covid-19 and the Russia-Ukraine War.
Dollar 20-year high
The dollar has surged to a 20-year high against a basket of currencies crashing market currencies.
Impact of stronger dollar
A strong dollar compels countries to use more of their own currency to buy the same quantity of goods.
That higher price means the countries are inadvertently importing more inflation.
Since the affected countries borrow in dollars, they have to pay interest in dollars, which adds to their financial distress.
Rising bond yields
In 2016, Ghana borrowed $1 billion for 10 years, paying an interest rate of just over 8 percent.
As the country’s financial position has worsened and investors have backed away, the yield — indicative of what it would now cost Ghana to borrow money until 2026 — has risen above 35%.
SOURCE: The Finder