Cedi to Rebound on Strong Ghana Economy, Says Central Bank

ACCRA (Capital Markets in Africa) – The slump in Ghana’s currency to a record low against the dollar will be temporary and doesn’t reflect the West African nation’s positive economic fundamentals, according to the central bank.

The cedi has declined 8.2 percent this year, the most among more than 140 currencies tracked by Bloomberg, posing risks to the inflation outlook and foreign-investor demand for the country’s bonds. Almost all of the losses came after the Bank of Ghana unexpectedly eased interest rates by 100 basis points to 16 percent on Jan. 28.

The weakness was driven by negative sentiment toward emerging markets and will be short-lived, said Steve Opata, director of financial markets at the Bank of Ghana. Two years of trade surpluses and narrowing current-account and fiscal deficits should provide ample evidence that the economy is well-managed, he said.

“The performance of the cedi doesn’t correlate with the fundamentals,” Opata said in a phone interview from the nation’s capital, Accra. “Because it is sentiment-driven, it should correct. It’s a temporary situation that will correct.”

Foreign-currency inflows of $850 million before the end of March, including a $300 million loan for the cocoa regulator, will replenish reserves that have decreased to $7 billion dollars at the end of December from $7.6 billion the year before.

Other Key Insights:

• Foreign-exchange earners such as exporters and mines will no longer be allowed to arrange their own auctions and should sell their proceeds to banks.
• The current account deficit narrowed to 3.2 percent of gross domestic product at the end of 2018, from 3.4 percent of GDP the year before.
• Ghana is expected to record a third straight annual trade surplus in 2019 as oil and gas production increase.
• The introduction of a minimum duration for forward and swap contracts should decrease volatility.
• Traders will no longer be bound by a fixed margin on sales of foreign-currency that they buy from the central bank.