Armed with Gross International Reserves of US$8,418 million at the turn of the year, and the proceeds from an impending new Eurobond issuance of US$3 billion expected by the second quarter of the year at the very latest, the Bank of Ghana has the capacity to defend the cedi against any adverse move with regards to exchange rates, and most importantly, Dr Ernest Addison says the central bank is ready to use that capacity if the need arises.

This means the BoG is willing and able to intervene on the forex market again to defend the cedi against any untoward depreciation – translate as depreciation caused primarily by speculation by investors and currency traders, rather than by faltering actual macroeconomic performance – through 2020.

After, negative sentiments by foreign investors early in 2019, set off sharp cedi depreciation, which was quickly accelerated by currency traders and investors who took speculative positions against the cedi, nervousness has persisted in Ghana’s local forex market despite the national currency’s strong showing since late March last year.

However, Dr Addison’s declaration last Friday, about the BoG’s readiness to intervene on the forex market if required, should be enough to warn off currency speculators who tend to seek profits from cedi depreciation, behavior which tends to be spike in election years.

The BoG is taking the seasonal nature of Ghana’s forex inflows from exports into consideration; the biggest annual inflow comes through the Cocobod’s international syndicated loan used to finance cocoa beans purchases from local farmers.

The bulk of the loan proceeds usually comes during the latter part of the third quarter and therefore serves- to beef up gross international reserves and consequently the cedi’s exchange value during the last months of the year when demand for forex is at its highest.

Importantly, this year, Ghana should be able to borrow more than usual for this purpose since the US$400 per ton Living Income Differential will commence from the 2020/2021 cocoa crop season and indeed, with Ghana selling most of its premium quality cocoa on the futures market rather than the spot market, the country is already making sales under the new price regime, forced on global commodity markets by Ghana and neigbouring Cote d’Ivoire, who between them account for about 60 percent of global production.

Consequently, the BoG is confident that any intervention on its part to defend the cedi would only be required up to August or September, upon which it could replace any draw downs of Ghana’s international reserves.

Encouragingly though, in direct contrast to the situation a year ago, the BoG is not being required to defend the cedi through local forex market interventions. A year ago, it cost the BoG some US$600 million from Ghana’s international reserves to intervene and this only slowed the cedi’s depreciation during months of crisis.

This year, however, the cedi has actually appreciated marginally against the US dollar in January, by 0.3 percent, without significant intervention by the BoG – in direct contrast to the 2.6 percent depreciation suffered in January 2019, even with central bank intervention -and cumulative depreciation of 12.9 percent for the whole year.

Ghana’s gross international reserves at the start of this year was enough for 4.0 months of import, well above the 3.5-month minimum threshold, and the impending Eurobond issuance will take it well beyond the US$9,959 million record high achieved in March 2019 after the last US$3.0 million issuance.

This means it is unlikely that the BoG will need to intervene substantially this year – but if it does it will do so decisively. Which means Ghanaian s can look forward to a rare election year with comfortable exchange rate stability, barring any dramatic, unforeseen changes in the global economic outlook.