Free falling cedi can’t be stopped

- Gold Coast Securities

The Ghanaian cedi would continue to depreciate to the US dollar through the first half of 2009, analysts at Gold Coast Securities (GCS) have said.

They explain that the major factors that have given rise to a steady run down of the local currency are beyond the control of monetary and fiscal policy in the near term.

Speaking in an interview with this reporter, Collins Appiah, Head of Research at Gold Coast Securities explained that excess demand of the dollar in the local economy and the subsequent sharp depreciation of the cedi to that currency have been aggravated by falling cocoa and gold prices on the international markets.

He noted that the fall in the prices of these major exports has meant a reduction in the inflow of foreign exchange.

According to him, the cut in receipts from exports has been worsened by a rising import bill that appears to be unresponsive to global economic trends.

“We are importing basically everything now, and we don’t care how high prices go at the source regions,” he said.

Mr Appiah also pointed out that the global recession has made foreign investors and Ghanaian investors abroad apprehensive, with many pulling out of “our cal capital markets”. Taking out such monies has resulted in a further strain on local currency.

He further stated that, “obviously, remittances have also been on the decline and aid flows have waned following the global turmoil.”

Mr Appiah also paid tribute to a growing confidence in the Obama presidency, a factor that has heightened expectations in an earlier than predicted US recovery, and which has seen the dollar strengthening against most major international currencies.

“These are clearly factors government can do little about”, he said, adding that “a probable policy direction could be to increase exports and to curb importation, the impact of which would not be realized immediately.”

In that direction, Mr Appiah noted that it would be prudent for government to re-introduce taxes on imported cereals and other imported food items that were removed in July 2008.

To him, the policy has outlived its usefulness as local staples have stalled then looming food crises. The move in his view would enhance agric productivity locally and conserve much foreign exchange.

As of Thursday February 5, 2008, the cedi was quoted at 1.2899 to the dollar, having depreciated by 6.25% from year open. The dollar at the beginning of January went for GH¢ 1.2140.

Compared to the past year, the cedi had only depreciated by 0.31% by February 5, 2008

The cedi value has also declined sharply to the British pound this year. From GH¢ 1.7694 at the beginning of January, the pound as at February 5, 2008 sold for GH¢ 1.8564. This implies a cedi depreciation of 4.92%, compared to a modest appreciation of 0.11% for the same period last year.

The cedi had however appreciated by 1.87% to the Euro as of February 5, 2008, against a corresponding 1.33% depreciation a year ago.

Against the CFA Franc which is aligned with the Euro, the cedi had appreciated by 1.89% last Thursday as a against a 1.33% depreciation in 2008.

The Gold Coast Securities (GCS) Index that measures the average cedi movements against all these major trading counterparts had risen 5.08 points last Thursday, from 118.47 at the start of January to 123.55 points, representing a year to date depreciation of 4.29% in the local currency.

This compares unfavorably with a year to date depreciation of 0.44% as at February 5 , 2009. The index is clearly skewed towards dollar movements, indicating the market share of the green back in Ghana’s international transactions.