Fitch Solutions, the research arm of rating agency Fitch, forecasts modest gains for the Ghana cedi against the US dollar in the coming months.
The Ghana Cedi suffered severe depreciation in the first three months of 2022, making it the worst-performing currency on the African continent during the period.
However, recent monetary policy actions by the Bank of Ghana and fiscal measures by the Finance Ministry appear to be producing results.
The Bank of Ghana’s Monetary Policy Committee raised the policy rate – the rate at which it lends to commercial banks – by 2.5 percentage points to 17 percent in March 2022, for the first time since November 2018.
The Central Bank also announced measures for commercial banks, including an increase in cash reserves to 12 percent and a reset of the Capital Conservation Buffer to the pre-pandemic level of 3 percent, for a total capital adequacy ratio of 13 percent.
The Finance Ministry also announced fiscal measures to reestablish economic confidence. They included an additional 10% cut in discretionary spending, a 50% cut in fuel coupon allocations for all political appointees and heads of government institutions, a moratorium on the purchase of imported vehicles for the rest of the year, and a moratorium on all foreign travel, except pre-approved critical/statutory travel.
Ben Weaver, Analyst with the Sub Sahara African Department at Fitch Solutions, told Joy Business that the cedi’s outlook is promising.
“Our outlook for the cedi, I believe we’ve seen quite a bit of weakening in the first few months of this year.” However, we expect modest appreciation to continue in the coming months and through the end of the year, as much of the weakening has already occurred.”
“However, this will undoubtedly increase inflationary pressures.” “However, we don’t expect inflation to accelerate much higher than it is now,” he explained.
He went on to say that “Ghana’s inflation rate has accelerated quite aggressively, and this is due to rising gold prices due to the weakening of the cedi.”
On the forex market, the local currency is currently trading at 7.45 per dollar.
Its year-to-date depreciation against the American ‘greenback’ is approximately 15.56 percent.