Bank of Ghana (BoG) to offload US$450m to stabilise cedi in first quarter

The Bank of Ghana has indicated it will pump US$450million into the forex market during the first quarter in a bid to stabilise the local currency against the US dollar.

This was announced in a release by the bank on January 4, 2022 in the auction target calendar. From the calendar, the central bank is ready to accept bids of up to US$150million each month in the first quarter. This comes after the local currency recorded a 4 percent depreciation against the US dollar at the end 2021, despite an earlier appreciation.

The central bank’s move, which was initiated a few years ago, is aimed at tackling the occurrence of speculation – which is a major cause of cedi-depreciation, especially in the first three months of the year.

 Commenting on the initiative in an interview, Director of the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, Professor Peter Quartey, said even though it is a fine move from the Bank of Ghana, it is only a temporary measure – and it’s about time the country started thinking toward a more sustainable approach that hinges on transitioning to a more export-led economy.

“If you look at our exchange rate, it is either when Bank of Ghana pumps in money like it is going to do or we receive a loan or grant of some sort, then you see the exchange rate stabilising. Because we have become so import-dependent, no matter the amount of foreign currency we have, we still demand more than we are able to supply – and that brings pressure on the exchange rate.

“We are not exporting as much as we should to earn enough foreign exchange as needed. It is only through this that the rate of depreciation is moderated. If we need a permanent solution, then we should be exporting more than we are importing. Our taste and desire for imported products have gone beyond imagination, even to the detriment of local production – and that is not sustainable. We have to encourage production and consumption of local goods,” he said.

Toward the end of last year, the cedi recorded its highest depreciation in the year against the US dollar, as demand for the greenback by importers increased ahead of the festive season.

Besides rising demand for FX by importers that has triggered a sharper depreciation of the cedi against the US dollar, another development that has fostered the situation, according to the central bank, is some foreign investors’ decision to pull out due to debt sustainability concerns.

“Increased concerns about strength of the recovery and the stronger US dollar have exerted currency pressures in some emerging market and frontier economies. Consequently, policy rates in some emerging market countries have been hiked to counter rising inflation.

“The country’s sovereign bond spreads widened markedly over the period, as investor sentiments shifted based on fiscal and debt sustainability concerns, prompting some sell-offs by investors with spillovers on the domestic foreign exchange market. This triggered some currency pressures in the past two months as demand for the U.S. dollar increased,” the 103rd Monetary Policy Committee (MPC) statement said.