The cedi has recently been described as one of the worst performing currencies in the world as a result of weak fundamentals and some misguided policies of the Central Bank, Dr Mahamadu Bawumia, Vice Presidential Candidate of the New Patriotic Party (NPP) in the 2016 general elections has said.
The cumulative depreciation of the local currency, which in the last seven years stands at 70 percent, is expected to be at least 90 percent by the end of 2016,
Speaking recently at the party’s headquarters in Accra, he intimated: “The cedi depreciated from some GH¢1.20 to the dollar in 2009 to GH¢3.80 to the dollar currently, having reached GH¢4.70 to the dollar earlier this year.
“This is in contrast to the remarkable stability of the cedi during the eight years of the New Patriotic Party (NPP) administration, with a cumulative cedi depreciation of some 40 percent in eight years.”
Seth Terkper, Finance Minister, while presenting the 2016 Budget to Parliament in November, this year, emphasized that “developments in the exchange rate over the nine month period showed a general weakness in the Ghana cedi against the major trading partners except for the month of July during which the cedi regained some value.”
He said in the nine-month period in the interbank market, the Ghana cedi depreciated cumulatively by 14.8 percent, 12.6 percent and 7.8 percent against the US dollar, the Pound sterling and the Euro respectively compared to a much higher depreciation of 31.2 percent, 29.3 percent and 23.6 percent recorded in the corresponding period of 2014.
Increased demand for foreign exchange for loan repayments and imports however meant that demand pressures still remained though much more contained, the minister stated.
Lower commodity prices on the international market and a fiscal crisis led to a sharp drop in the cedi against the dollar, raising import prices and pushing the inflation up in the last two years.
Consumer prices in Ghana increased by 17.60 percent year-on-year November of 2015, following a 17.4 percent rise in the previous month. It is the highest inflation rate since July, boosted by rapid increase in the cost of food, housing and utilities, transportation and clothing.
Reforms under the IMF
The International Monetary Fund (IMF), in its first review of Ghana since accepting to support Ghana via a three-year economic support programme, highlighted reforms to strengthen the foreign exchange market.
It said at end-July 2015 the Central Bank adopted a strategic plan to eliminate the compulsory surrender requirements of foreign exchange by mid-2016.
Also, it mentioned that “BoG will develop a detailed action plan for implementation with IMF technical assistance in September. This should contribute to deepening the foreign exchange market and reduce volatility of the exchange rate.”
According to tradingeconomics.com, the cedi increased 0.0417 or 1.10 percent to 3.83 on Monday, December 21 to a dollar from 3.79 in the previous trading session.
The local currency gained 0.655 or 20.60 percent during the last 12 months from 3.18 in December of 2014.
Historically, the Ghana cedi reached an all-time high of 151.50 in July of 2011 and a record low of 0.90 in July 2007.
Source: Daily Guide
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