Cedi gets relief from World Bank loan facility, Easter remittances

Last week witnessed a significant appreciation of the cedi against major currencies, buoyed by a combination of positive factors.

According to Databank Research, the infusion of US$300million by the World Bank, the first tranche of its US$900million support to Ghana, coupled with increased Easter holiday remittances, played pivotal roles in bolstering foreign exchange (FX) liquidity.

In a statement, Databank Research highlighted the impact of these developments. “Improved FX liquidity supported GHS on the retail market, contributing to enhanced selling activity by the Bank of Ghana on the spot market, and consequently supporting the cedi against major trading currencies.”

Despite seasonal pressures experienced in the foreign exchange market in February and early March, including the strengthening of the US dollar and payments in the energy and corporate sectors, the cedi demonstrated resilience in recovering its value.

The Bank of Ghana reported that challenges such as delays and uncertainties associated with the cocoa loan inflow and the World Bank’s Budget Support disbursement were mitigated to some extent by continued inflows from remittances, mining companies and the domestic gold purchase programme.

According to the Bank of Ghana, “These inflows have helped alleviate some of the pressures faced by the cedi in recent weeks”.

The cedi exhibited gains across various metrics, with a week-on-week strengthening of 0.56 percent against the US dollar, closing at a mid-rate of 13.43 GH¢/USD. It also outperformed the British pound and Euro, appreciating by 1.51 percent and 0.35 percent, respectively, on the retail market.

Databank Research stated: “The recent appreciation of the cedi against major currencies reflects its resilience and the positive impact of external support measures”.

This positive trajectory follows a prior week’s improvement, coinciding with the disbursement of the World Bank facility. Notably, the cedi appreciated against the British pound and Euro by 0.30 percent and 0.35 percent week-on-week, respectively; and experienced only a marginal depreciation of 0.19 percent against the US dollar compared to the previous week.

It is projected that the cedi’s positive momentum could extend further, pending the outcome of the International Monetary Fund (IMF) assessment under its Extended Credit Facility (ECF) programme.

“A successful review could inject additional confidence into the market and curb speculative activities,” Databank added.

In response to these developments, FX supply increased, bolstering foreign exchange liquidity and strengthening the intervention capacity of the central bank. As sentiments improve and liquidity increases, expectations are for enhanced stability in the near term for the cedi.