EIU’s prediction on local currency is over-ambitious – Economist
Economist with Databank, Courage Boti has described the projection made by the Economist Intelligence Unit (EIU) on the local currency as somewhat over-ambitious, given the current economic conditions and the instability of the Ghana cedi in recent times.
In its latest assessment of the Ghanaian economy, the London-based organisation projected a further weakening of the cedi, despite a sustained period of stability in the past few weeks.
It noted that the local currency is expected to depreciate sharply from GH¢6.00 to a dollar at the end of 2021 to GH¢7.87 to a dollar at the end of 2022.
Speaking to Citi Business News, Economist with Databank, Courage Boti noted that the projection made by the Economist Intelligence Unit (EIU) was bullish
“Their projections on the exchange rate is very bullish. As it stands now and I want to believe that they are projecting for the retail market. As it stands it now exchange rate is around 7.5 – 7.6 cedis to a dollar depending on where you are buying from. I believe and I understand that there could be some corrections because the trend we saw for the start of the year till where we are now was an unusual one, triggered by a lot of factors. And I think the 2 billion we are expecting from the syndication loan will help in that regard. The bank of Ghana has introduced a forward auction has also for the BDC’S which will help control the level of demand on the open market.
But that not withstanding we know there is pressure sources and for the second quarter, profit repatriations will be there. We would see seasonal demand pressures resurface again in the fourth quarter. And even if the cocoa loan comes somewhere in the third quarter or towards the fourth quarter the question is will it be enough to sustain us down through the utilized season into the next year. And so I thought that the 7.35 currency projection or cedi dollar exchange reprojection for 2022 is against quite bullish,” he said.
Ghana’s economy has been going through turbulent times since the beginning of the year, as it is plagued with a number of challenges, including rising inflation and the rising cost of fuel. The country’s currency has also suffered some depreciation, especially against the US dollar.
According to the data from the Economist Intelligence Unit, the cedi weakened sharply in the first two months of 2022, reflecting increased demand for local currency due to a strengthening in Ghana’s structurally import-dependent economy.
In a bid to stabilise the cedi, the BoG announced foreign-exchange interventions, with US$450m to be released via foreign-exchange forward auctions in the first quarter of 2022; US$300m had been released as at early March.
Regardless, the EIU believes strengthening growth will continue to reinforce import dependency, causing the cedi to depreciate on average over 2022.
With a dollar currently selling for about GH¢ 7.90 at some forex bureax, the prediction by the EIU represents a further weakening of the cedi, despite a sustained period of stability in the past few weeks.
They are also of the view that there will be a gradual depreciation over the remainder of the forecast period, to GH¢10.06:US$1 at end‑2026, due to Ghana’s sustained current-account deficit.
Source: Ghana Business
