The cedi’s dark days appear to be over, at least until the end of the year, with market movements over the last week. There is a showing sign of sustained recovery that could bring major relief to traders, market players including bankers and ordinary citizens who only crave stability in the currency regime.
The local currency, which traded as high as GH¢15 to the USD some two weeks ago
on the interbank markets and almost GH¢16 on the retail market has made some
gains after several regulatory and government interventions. The cedi is
currently trading between GH¢13- GH¢14 on both markets.
According to Ashley Thompson-MacCarthy, The Executive Director at Obsidian
Achernar Limited, a leading Financial Services and Africa-Focused firm, events
from last week and the beginning of this week, coupled with the advanced nature
of negotiations with the International Monetary Fund (IMF) for a programme,
shows that the worst of the depreciation is over, and Ghanaians can look forward
until at least the end of the year with some optimism about the currency.
“We believe that the worst is over, and the currency will strengthen against
the greenback (US Dollar). We will see prices stabilise and even appreciate to
the levels of GH¢11.5 to US$1. That is what we believe,” he said, sounding
highly optimistic.
“We think the currency is undervalued due to the perception that we do not have
a structured economy. And we have seen prices across bond yields reflect that
lack of confidence. However, in the last week or so, we have seen bond yields
drop marginally. And we believe this is a sign of things to come,” Mr.
Thompson-MacCarthy noted.
Last week, the Central Bank revoked the licences of some forex bureaux which
have been flouting sections of the Foreign Exchange Act. Also, black market
operators who have no licence are being clamped down. In addition to these
moves, the Bank of Ghana announced the receipt of more than a US$1billion in
forex via a loan from Afreximbank and the first tranche of the cocoa syndicated
loan.
These moves have calmed the markets and have seen individuals and corporates
which have been hoarding the US currency as a store of value begin to release
their dollars.
“Some weeks ago, there was an unusual high demand for dollars by people who
ordinarily would not be demanding dollars. This led to the rapid deprecation
but the moves by the regulator have changed the mood and over the past seven
days, we have seen a flush of USD on the market,” he added.
America’s likely recession/IMF negotiations
With several economists and market analysts predicting a likely recession in
the United States in the coming months, Mr. Thompson-MacCarthy believes this
could auger well for developing economies such as Ghana.
“The retracement of cedi’s free fall is also bringing back international
investors into our market. On the talks that the United States are going into a
recession, these international investors are looking for yields, they are
looking for where to invest and we see that Ghana is undervalued.
Typically, when countries enter into an IMF programme, we should see the
currency stabilise and so we are going into that period where we believe that
the worst is over. Whereas if you look at the West, especially a country like
America, its Dollar Price Index, dropped from 113 to as low as 109. Today it is
stabilising around 111. This shows that there is volatility in America.
“Having a well-diversified investment portfolio is strategic. We believe that a
major part of the gains from keeping cash dollars have been crystallized on our
market. As the dollar begins to weaken globally, it will be good to take
advantage of other asset classes like Government bonds that are heavily
discounted and make a good entry. Also, there are options like commodities,
property and real estate markets that provide leverage that is currently
untapped in our country,” he added.
December in GH
With the Year of Return raking in almost US$2billion in 2019, according to
official data, the government has introduced a comprehensive December in GH
plan that seeks to make Accra and Ghana the holiday destination of Africa. With
the worst days of the pandemic over, this December primes to be a gamechanger.
This, Mr. Thompson-MacCarthy believes would also bring in some good FX to
support the local currency. “Our biggest asset, which we do not talk about much
is peace. The fact that we have political stability means we can attract
foreign investment and tourism opportunities that bring in very good FX for the
economy. We must cherish this and make it a mainstay of the economy.”
The authorities should endeavour to make sure that the impending FX from the
end-of-year activities are routed through regulated channels, he added.
Source: B&FT