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Business News of Tuesday, 12 June 2018

Source: citibusinessnews.com

Speculation causing cedi depreciation - Economist

The recent depreciation in the cedi, relative to the U.S dollar could be due to speculative activities, Head of Economics Department at the University of Ghana, Prof. Peter Quartey has said.

Prof. Quartey maintained that the speculative activities, coupled with the increase in the interest rates in the U.S may have influenced the decision of investors in the country to move their funds.

As at May 7, the cedi was trading at 4 cedis, 41 pesewas but by June 7 it had depreciated by 0.7 percent to 4 cedis, 44 pesewas.

The central bank has already assured that the changes in the exchange rate is temporary, hence will soon see some stability.

But speaking to Citi Business News, Prof. Quartey stated that the central bank must provide more information to reduce the activities of speculation.

He was of the view that investors will also act on speculation and what they perceive will happen in the future.

“When there is speculation in the news, false information, or expectation, that can also affect the exchange rate. So in my view, what is happening to some extent is purely due to speculation.

Prof. Quartey was of the view that the economic fundamentals have not shown any weaknesses in recent month.

He argued that with such fiscal consolidation, the depreciation of the cedi could be fuelled by external forces that may lead to speculation.

He, however recommended that it is important for the Bank of Ghana to trigger immediate measures to prevent a spillover effect on the economy.

“With speculation, the central bank will have to intervene again and put in more funds to stabilize the system, and I believe that is what they are doing. The central bank has to put in more forex,” he said.