BOG is determined to save a falling cedi—Bloomberg

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Finance Desk – GITFIConline.com

Mr. Moses Mozart Dzawu of Bloomberg says the Bank of Ghana sells US dollars to stabilise the cedi and closely monitors foreign exchange trading in Ghana.

According to Dzawu, Ghana’s cedi has weakened every year since the mid-1990s, and the central bank currently appears to be determined to intervene should the currency “slip out of the tight range it’s held since May.”

This was made known to the gitficonline in an Al Jazeera online publication on Thursday in which Dzawu accounted for the performance of the Ghana cedi over the past few decades.

“The Bank of Ghana has sold dollars in the spot and forward markets to stabilize the cedi, and closely monitors foreign-exchange trading to keep speculation to a minimum,” according to traders and analysts who spoke to Bloomberg.

According to the report, the central bank is currently well-armed with foreign-exchange reserves after a $3 billion Eurobond sale in February, which means the currency probably will not weaken much beyond the 2.1% decline it posted this year and would be its best performance since 2006, when it dropped 1.4%.

Mr. Dzawu informed that the cedi had slumped 18.8% a year on average over the past two-and-a-half decades, taking his facts from data compiled by Bloomberg on the cedi.

In a similar submission, A Senior Research Analyst at Apakan Securities Ltd, Edem Kporku, said, “The central bank had been coming onto the market to match dollar demand in the last couple of months and had been trying to maintain the currency at a fairly stable trading range.”

“In addition to the Eurobond, the country received a $1 billion emergency loan from the International Monetary Fund and a $100 million package from the World Bank after the coronavirus struck,” he indicated.

In a further attempt to stabilize the cedi, the report said the central bank concluded a $1 billion repo arrangement with the U.S. Federal Reserve, helping sustain international reserves that eased to $9.2 billion in June from $9.9 billion in March.

The Head of Treasury at GCB Bank Ltd, Mr. Anthony Asare, in his analysis on the situation, said the regulator sells about $40 million each month on the spot market and $50 million on the forward market. Though the amounts aren’t large, “these interventions reduce speculation and give direction to the market,” he said.

A Johannesburg-based Economist at Rand Merchant Bank Ltd., Neville Mandimika, said the cedi was little changed at 5.7817 per dollar on Thursday. “It’s been trading in a range around that level since rebounding from a decline to a record 6.0401 in the wake of the Covid-19 sell-off in April, while risks, including elections in the U.S. and Ghana, may weigh on the cedi; it’s unlikely the central bank will allow sustained weakness.

“Any weakness is likely going to invite the Bank of Ghana to sell dollars into the market to stabilize it,” Mandimika added.

As U.S. heads to the polls in November while Ghana follows in December, one wonders whether there would be a repeat of what happened ahead of the 2016 elections when the cedi lost 11% to the US dollar.

In that regard, an Economist at Databank Group, Courage Martey, said a $1.3 billion inflow from the Ghana Cocoa Board’s syndicated loans for cocoa purchases is expected in October and that will top up the central bank’s reserves.

“Our external obligations for the short-term have already been catered for,” Martey said indicating that that would take pressure off the currency even in the run-up to elections.

According to Dzawu, all efforts to get a response from the Head of Financial Markets at the Bank of Ghana, Mr. Steve Opata, proved futile.