Business

Foreign investment inflows helped cedi’s stability in first half of 2021 – Economist

Economist, Courage Martey, has lauded the cedi’s performance so far this year.

Ghana’s local currency has remained fairly stable in the first two quarters of 2021, experiencing a depreciation of less than one percent against the US Dollar between January and June.

According to Mr. Martey, the stability of the currency can be attributed to the renewed inflow of foreign portfolio investment enjoyed by the country, especially in the first quarter of the year.

He explained to Citi Business News how the key factors ensured the relative stability of the local currency against the US Dollar.

“The cedi actually enjoyed support from foreign investment inflows, especially in the first quarter of this year. We also didn’t experience strong demand from corporate institutions and multinationals. So the cedi found strong support from the supply, which was not absorbed by demand.”

“In the second quarter, we saw a renewed increase in corporate demand. The demand for forex to repatriate this profit actually increased the demand pressure on the market. Because of the Bank of Ghana’s intervention, even though the demand was increasing, we saw it happening in a very controlled space. However, we ended the quarter by overturning all the gains we made in the first quarter so that at the end of the first half of this year, the cedi appears to be relatively stable.”

Performance of the cedi

After depreciating by more than 8 percent and 12 percent against the US dollar in 2018 and 2019 respectively, the Cedi showed a rare determination to shed only about 3.8 percent of its value against the US dollar last year.

The issuance of the US$3 billion Eurobond in February 2020, coupled with the implementation of effective measures by the Bank of Ghana such as its forex forward auctions, and other factors, ensured the local currency remained stable throughout 2020.

The trend of stability has continued into 2021. The Ghana Cedi begun the year 2021 trading at GHS5.76 pesewas to a dollar. By the middle of the year, which is June ending, it was trading at GHS5.75 pesewas to a dollar.

Figures from the Bank of Ghana indicate that as at Thursday, July 1, the cedi had depreciated by 0.17 percent compared with a depreciation of 2.32 percent in the same period last year.

Forecast

Courage Martey is confident the Ghana Cedi will remain stable when compared to its peers on the African continent for the rest of year.

“If look at what we did last year, we actually recorded a 3.9% depreciation against the US Dollar and historically, we’ve depreciated on an annual basis and that is largely because we run a current account deficit. In that case, you spend more dollars than you earn so the difference is what will result in the depreciation of the currency. So once we would run a current account deficit this year, the expectation is that we would still record some depreciation.”

“The current account deficit for this year is expected to be quite small. So we don’t expect depreciation that will significantly deviate from what we saw last year. Overall, that is a depreciation that you can term as tolerable on the market.”

Source: Ghana Business

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