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Bright Simons: Ghanaian cedi has declined drastically

Bright Simons: Ghanaian cedi has declined drastically

Bright Simons is sceptical that traders will stop exchanging Cedis for dollars unless…

The founder of mPedigree, Mr Bright Simons, said that investors will cease converting Cedis into dollars despite the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) raising the policy rate because there is no longer a reason to do so.

According to him, not necessarily the increase in the policy rate, but simply the investors themselves must be willing to do that for this to occur.

The Vice President of Imani Africa indicated that there is a contradiction between raising policy rates on the one hand and motivating investors on the other during the Business Focus show with Paa Kwesi Asare on TV3 on Monday, August 22.

What we do know, based on our conversations with professionals in the field, is that many retail investors are entering the market and looking to get their money back. Some of them are no longer rolling over the way they once did.

Dr Ernest Addison, Governor of the BoG, said recent developments in the foreign exchange market showed elevated demand pressures, reflecting among other things, the continued heightening of uncertainties in the global economy, rising inflation in many advanced economies, and the consequent coordinated tightening of monetary policy stance by major central banks. He was speaking at the MPC’s emergency meeting in Accra on Wednesday, August 17.

He added “That is something that we have all known for quite a while. Then the second issue is the fact that typically, a lot of the products that are on the market have never seen positive returns.

“So when you raise the policy rate, how do you incentivize investors to increase their use of other alternative assets that will therefore have to mop up excess liquidity if there is any such excess liquidity? So the linkages are not very clear.”

As part of measures to deal with the challenges facing the economy, especially the fall of the Cedi, the MPC increased the policy rate to 22 per cent from the initial 19 per cent.

Read this: BoG to clean up non-compliant forex bureaus

Against all major currencies, the US dollar has become stronger. The pound sterling has lost 12.4 per cent of its value versus the US dollar and 11.8 per cent against the euro since the start of the year. All of Ghana’s peers (countries that are comparable to Ghana) are currently going through a significant devaluation.

He pointed out that the Ghanaian Cedi has declined by 25.5 per cent year-to-date, reflecting the country’s unique circumstances, including the difficult budgetary financing from both domestic and foreign sources, the downgrading of the sovereign credit rating, nonresidents’ withdrawal from local currency bonds, and the loss of reserve buffers.

“The year’s budget has continued to be difficult to implement. Revenue has fallen short of expectations, which has made funding difficult.

The mid-year budget assessment shows that central bank overdraft has helped to close the financing gap due to the lack of access to the foreign capital market and the limited domestic financing. The Bank of Ghana is negotiating an overdraft cap with the Ministry of Finance.

The current policy negotiations with the IMF are anticipated to address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and offer a durable balance of payments cushion while also addressing the urgent funding issues.

The Committee agreed to raise the Monetary Policy Rate by 300 basis points to 22 per cent in light of the situation and the risks to the inflation outlook.


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