Cedi to record modest gains against dollar in coming months – Fitch Solutions project

Fitch Solutions, research arm of ratings agency, Fitch, has projected modest gains for the Ghana cedi against the dollar in the coming months.

The local currency came under severe pressure in the first three months of 2022, making it the worst performing currency on the African continent during the period.

But the recent monetary policy actions by the Bank of Ghana and fiscal measures from the Finance Ministry appears to be yielding results.

The Monetary Policy Committee of the Bank of Ghana increased the policy rate – the rate at which it lends to commercial banks – by 2.5% to 17% in March 2022, the first time since November 2018.

The Central Bank also announced measures for commercial banks including increased cash reserve to 12%, whilst the Capital Conservation Buffer was also reset to the pre-pandemic level of 3% making the Capital Adequacy Ratio a total of 13%.

The Finance Ministry also announced fiscal measures to restore confidence in the economy. They included additional 10% cut in discretionary spending, 50% cut in fuel coupon allocations for all political appointees and heads of government institutions, moratorium on the purchase of imported vehicles for the rest of the year and moratorium on all foreign travels, except pre-approved critical/statutory travels.

Speaking to the media, Analyst with the Sub Sahara African Department at Fitch Solutions, Ben Weaver said the outlook of the cedi is promising.

“Our outlook for the cedi, I think we’ve seen quite a lot of weakening in the first few months of this year. But we expect modest appreciation to kind of continue in the coming months and to the end of the year as much of the weakening has already happened.”

“But this will of course increase inflationary pressures. But we don’t expect inflation to accelerate too much high the way it is”, he explained.

He further said that “Ghana’s inflation rate accelerated quite aggressively and this is due to rising gold price due to the weakening of the cedi”.

The local currency is currently going for ¢7.45 to the dollar on the forex market.  

Its year-to-date depreciation to the American ‘greenback’ is about 15.56%.