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Cedi Stabilizes After Weeks of Turbulence

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Following weeks of sustained depreciation, the cedi has shown signs of recovery against some major trading counterparts in the past week.

This positive trend follows successful intervention efforts by the Bank of Ghana (BoG) and Parliament’s recent approval of a US$300 million loan facility from the World Bank.

The cedi experienced a modest 7.2 percent cumulative depreciation against the US dollar throughout 2023, particularly between February and December. This depreciation was primarily attributed to increased corporate demand for foreign exchange (FX) due to operational needs and profit-taking activities.

Recent data indicates a week-on-week appreciation of 0.93 percent against the British Pound (GBP) and 1.43 percent against the Euro (EUR), while the exchange rate with the USD remained stable at GH¢12.98.

Analysts credit the BoG’s strategic intervention, including injecting US$17 million into the market, for contributing to this newfound stability. Additionally, over US$106.10 million was injected through spot market operations and sales to bulk oil distribution companies (BDCs) in January and February 2024.

Databank analysts note that although corporate demand continued to pressure the cedi, the BoG’s interventions helped maintain stability.

The Parliament’s approval of the US$300 million World Bank loan on March 8, 2024, is expected to provide a significant boost. With favorable terms such as a 26 percent grant element, a 25-year repayment period, and a 5-year grace period, this loan is poised to bolster foreign exchange reserves.

Databank anticipates stability in the near term as the loan is disbursed, improving liquidity and strengthening the central bank’s intervention capacity.

This loan, the first installment of the World Bank’s Resilient Recovery Development Policy Operation, aims to support Ghana’s economic resilience and recovery. Despite initial disapproval from the Minority in Parliament, the Finance Minister has pledged to review tax breaks for companies in the One District One Factory program.

The funds from the loan will support initiatives to strengthen economic fundamentals, promote fiscal and financial sector stability, stimulate private sector growth, and enhance social and climate resilience.

While uncertainties remain regarding the transparent use of funds, especially in an election year, experts cautiously anticipate further cedi stabilization with the loan’s disbursement.