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NewsCurrent currency trends driven by market sentiment - Economist

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Current currency trends driven by market sentiment – Economist

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Professor Lord Mensah, an economist at the University of Ghana Business School (UGBS), attributes the ongoing depreciation of the local currency to market sentiment.

According to him, individuals are holding onto the dollar in anticipation of its value increasing in the near future, resulting in reduced trading activity at present.

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“If you take what is happening now, I will attribute it to more of a market sentiment other than the structural issues.”

“The reaction of the next level of the dollar at any point in time. If you are holding the dollar as to whether to sell it or to hold it depends on your anticipation of the dollar price in the next few moments or the next day, that is what is happening now.

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“So we have gone past the structural issues which used to be the balance of payment crisis that we had. Where our balance of payment depleted so as a result of that, the dollar buffer went down but what we see now is a self-fulfilling crisis,” he said.

Presently, the cedi, previously trading at GH₵ 11.98 against the dollar, has surged to approximately GHC 14.80 at forex bureaus. This marks a depreciation rate of nearly 20% since the year commenced.

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In the meantime, Minority Leader Dr. Cassiel Ato Forson has urged NPP flagbearer Vice President Dr. Mahamudu Bawumia to refrain from off-beat dancing on the campaign trail and instead prioritize efforts to stabilize the depreciating cedi.

During a press briefing in Parliament on Wednesday, May 15, Dr. Ato Forson expressed concern about the negative effects of the cedi’s depreciation on businesses in areas like Okaishie, Abossey Okai, Kejetia, and other commercial hubs.

The Caucus also highlighted worries regarding the lack of economic improvement despite the funds received from the International Monetary Fund (IMF) and the World Bank as part of the ongoing bailout program.

He said, “In spite of the huge inflows of foreign exchange from the IMF and the World Bank, into the Ghanaian economy, and I’m talking of billions of Ghana cedis, billions of US dollars, the government’s action and its management of the cedi have continued to fuel steep depreciation with no end in sight unfortunately.”

“So far, the decisions of the Economic Management Team, chaired by our Vice President Alhaji Bawumia leaves a lot to be desired. The reality of the Ghanaian economy today exposes the credentials of the so-called economic wizkid who was marketed as the savior of Ghana’s economy. Alhaji Bawumia’s credibility is now tatters.”

GUTA decries high exchange rate

According to Dr. Joseph Obeng, President of the Ghana Union of Traders Association (GUTA), the depreciation of the cedi against major trading currencies, particularly the dollar, has led to rising business expenses in Ghana.

Dr. Obeng noted that businesses are facing challenges servicing their debts with banks due to the exchange rate fluctuations.

GUTA, in a statement on May 14, expressed “deep frustration over the current depreciation of the cedi, which is creating a big mess for the business community, especially, the trading sector. This seeming crisis coupled with the ever-rising freight charges from Asia are rendering the cost of doing business unbearable.”

Weak fundamentals?

Meanwhile, a lecturer at the Department of Finance at the University of Ghana Business School (UGBS) has attributed the depreciation of the cedi to “weak fundamentals.”

Dr. Benjamin Amoah said, “The fundamentals are definitely weak. We should not play jokes about it. The truth is that the fundamentals are very weak. What is the fundamental here? What is the inflation rate as we speak now and what is has been the inflation rate over time, very high. What is interest rate, that is the fundamental factor, it is very high.”

“What is unemployment rate now? Unemployment rate is very high. What is our balance of payment position, it is very high and these are the very fundamentals that is used in accessing the exchange rate.”

According to him, the government addressing just one of the indicators does not resolve the depreciation of the cedi, stating that “it requires effective management of each of these factors.”

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