Financial analysts are predicting that the Cedi will weaken by about 10 percent versus the US dollar this year, which will largely be a repeat of the 2011 performance.
Local and international factors combined to cause the Cedi to weaken by 11 percent against the dollar based on inter-bank data, ending 2011 at 1 Cedi 66 pesewas per dollar.
A large part of the 2011 Cedi weakness was experienced in the second half of 2011, leading to increased price of imported goods especially during the festive season in December. According to market watchers, the phenomenon is likely to repeat itself this year.
The President of the Dealers Association of Ghana (a grouping of Treasury professional in Ghana, whose members are major players in the Ghanaian foreign exchange market) Kobla Nyaletey in an interview with the Globe newspaper said, �Taking a year�s view, we are likely to see a similar level of weakness and this will be driven by some factors including the perennial import dependent nature of the economy coupled with the signs of weaker remittances in the country this year.
�Remittances constitute a huge of chunk of foreign currency inflows into the economy and following the threatening financial crisis in Europe, this is likely to affect remittances into Ghana compared to previous years. �
A statement from the Money Policy Committee of the Bank of Ghana in its 48thmeeting said total inward transfers through the banks from January to October 2011 amounted to US$14. 5 billion, representing a growth of 48. 3 per cent over the corresponding period of 2010.
Of the total transfers, US$1. 6 billion accrued to individuals compared to US$1. 1 billion in October 2010.
Developments in the nominal bilateral exchange rates of the cedi to the US dollar showed increased depreciation. In the year to November 2011, the cedi depreciated by 4. 5 per cent against the US dollar, compared with a depreciation of 0. 6 per cent in November 2010.
In trade weighted terms, a real effective depreciation of 2. 3 per cent was recorded in November 2011, compared to an appreciation of 1. 5 per cent in the corresponding period of 2010.
According to Mr. Nyaletey, the cocoa prices on the international markets that have sunk to a three-year low could also have an impact on how the cedi performs against the dollar.
Cocoa is the single largest export commodity for Ghana representing a huge chunk of the country�s foreign exchange earnings and with the sinking cocoa prices, this is likely to affect the volume of foreign exchange Ghana will get.
Another factor that is likely to contribute to the depreciation of the Cedi is the anticipated lower offshore investor interest in Ghana bonds. The first quarter of 2011 saw a rather healthy offshore investor interest in Ghana bonds and their activities saw them sell more dollars into the system to buy cedis.
But Mr. Nyaletey said, �We may not see a similar level of interest this year simply because Europe remains in crisis which I think will contribute another 10 percent depreciation of the cedi on year-on-year terms by December 2012.
Last year, importers of general goods had no option but to pass on effects of the weakening cedi versus the dollar to consumers as they constantly had to find more cedi to buy the dollar for their imports.
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