Inflows from the International Monetary Fund (IMF) and World Bank are expected to provide some respite for the cedi as the country braces for the traditional surge in demand for foreign exchange during the festive season.
With the third-quarter demand season less than six weeks away, concerns have been raised over its potential impact on the local unit which has fluctuated against its major trading partners.
While the cedi has shown relative stability in recent months, thanks in part to central bank intervention among others, analysts warn that the currency remains vulnerable to shocks.
The upcoming elections and associated increase in government spending pose significant risks.
“It is important to note that the IMF Programme, while serving as a check on government’s expenditure also provides opportunity to boost Ghana’s foreign reserves.
“This, together with other inflows expected from the World Bank Development Policy Operation (DPO), might help absorb some of the FX shocks associated with the December festivities Deloitte said in its commentary on the 2024 mid-year budget.
The cedi depreciated by 18.6 percent, 17.9 percent and 16 percent against the dollar, pound and euro as at end-June 2024, according to official data.
The cedi’s depreciation was largely on account of the dollar strengthening against major trading currencies, high demand for foreign exchange from businesses, coupon payments on bonds issued in February 2024 and speculative activities, Deloitte noted.
Nonetheless, corporate demand for dollars, particularly in the run-up to the festive season, continues to be a challenge despite the cedi remaining stable for the most part of last week, buoyed by a US$10mn Bank of Ghana’s spot market support.
However, persistent corporate demand pressures put the cedi on the back-foot at the tail end of the week’s trading.
Consequently, the local unit shed 0.47 percent against the American greenback over the week to end trades at GH¢15.95 to US$1 on the retail market.
“The GBPGHS and EURGHS also dipped by 0.25 percent and 1.31 percent week-on-week respectively on the retail market,” Databank Research said in a note.
Analysts have maintained that government must prioritise export diversification and trade finance initiatives to reduce the cedi’s vulnerability to external shocks.
Earlier this month, the BoG’s centralised foreign exchange trading platform – which requires that all persons seeking to buy or sell foreign currencies provide a valid national identification document: Ghana Card or passport for foreign nationals and undergo biometric verification – came into effect.
Already, the BoG intends to sell US$20m to the Bulk Oil Distributing Companies during this week’s FX auction.
“We expect the auction to help tame some corporate demand pressures on the market and slow the cedi’s depreciation,” Databank added.