BoG action needed to quell cedi speculations – RMB Research

Analysts want the Central Bank to aggressively intervene in the currency market to quell increased demand and panic-buying, a situation that puts pressure on the cedi.

Although the Bank of Ghana Governor, Dr. Ernest Addison, has indicated that the central bank will have “minimal interventions” in the market, currency experts are of the view that the regulator must be aggressive in maintaining the gains the cedi has made in recent times.

RMB Research, the research arm of South African bank, FirstRand Bank Limited, noted that there was a surge in dollar demands last week despite weekly dollar sales by the central bank.

“Although the governor has shown a propensity for minimal intervention, we expect the BoG to come in more aggressively to quell demand and panic-buying,” it said in its weekly currency report.

According to Bloomberg, the cedi started last week at GH¢4.30 but closed the week on Friday, at GH¢4.405 before rallying this week to GH¢4.380 as at Wednesday, coming to a year-to-date depreciation of 3.42percent.

The cedi began the year on a poor note and had to rely on the Ministry of Finance’s bond issuances to withstand the might of the dollar.

As at March 9, the cedi was trading at GH¢4.6 to the dollar, representing an 8.6 percent year-to-date depreciation, but following a GH¢1billion three-year bond sale to only domestic investors at a yield of 21.5percent on March 10, the cedi saw a renewed strength.

Apart from the first billion Ghana cedi debt sale signaling the currency’s turnaround, a recent US$2.25billion bond sale opened to foreign investors also bolstered confidence in the local economy, boosting the cedi’s performance further.

By the first week of April, the cedi reached a historic point where it overturned all its losses, making the GH¢4.16 exchange rate the lowest since December 23, last year, when it traded at GH¢4.15.

The bond sale, which has stirred controversy in political circles, became the single-biggest daily transaction in sub-Saharan Africa. The debt included a debut 15-year bond that raised GH¢3.42 billion (US$790 million) at a 19.75 percent yield.

Since the issuances of these bonds, the currency has been largely stable, until recent activities which has led to analysts urging the central bank to step in.