As the third-quarter demand season approaches in less than six weeks, there are growing concerns about its potential effects on the cedi, which has experienced fluctuations against major trading partners.
Although the cedi has demonstrated relative stability in recent months, partly due to central bank interventions, analysts caution that the currency is still susceptible to shocks.
The approaching elections and the expected rise in government spending present notable risks.
“It is important to note that the IMF Programme, while serving as a check on government’s expenditure also provides opportunity to boost Ghana’s foreign reserves.
“This, together with other inflows expected from the World Bank Development Policy Operation (DPO), might help absorb some of the FX shocks associated with the December festivities Deloitte said in its commentary on the 2024 mid-year budget.
The cedi depreciated by 18.6 percent, 17.9 percent and 16 percent against the dollar, pound and euro as at end-June 2024, according to official data.
The cedi’s depreciation was largely on account of the dollar strengthening against major trading currencies, high demand for foreign exchange from businesses, coupon payments on bonds issued in February 2024 and speculative activities, Deloitte noted.
Nonetheless, corporate demand for dollars, particularly in the run-up to the festive season, continues to be a challenge despite the cedi remaining stable for the most part of last week, buoyed by a US$10mn Bank of Ghana’s spot market support.
However, persistent corporate demand pressures put the cedi on the back-foot at the tail end of the week’s trading.
Consequently, the local unit shed 0.47 percent against the American greenback over the week to end trades at GH¢15.95 to US$1 on the retail market.
“The GBPGHS and EURGHS also dipped by 0.25 percent and 1.31 percent week-on-week respectively on the retail market,” Databank Research said in a note.
Analysts emphasize the need for the government to focus on export diversification and trade finance strategies to mitigate the cedi’s susceptibility to external shocks.
Earlier this month, the Bank of Ghana’s new centralized foreign exchange trading platform was implemented. This system mandates that individuals wishing to buy or sell foreign currencies must present a valid national ID, such as a Ghana Card or passport for foreigners, and undergo biometric verification.
In addition, the Bank of Ghana plans to sell US$20 million to Bulk Oil Distributing Companies in this week’s foreign exchange auction.
“We expect the auction to help tame some corporate demand pressures on the market and slow the cedi’s depreciation,” Databank added.