Prime News Ghana

Ghana: The rise of the dollar and foreign exchange explained

By Justice Kofi Bimpeh
US dollar

The dollar rise in Ghana has affected most businesses as the cost of doing business in the country has increased, on Thursday, March 7, 2019, the Cedi is trading at 5.53 against the US dollar.

The dollar rise in Ghana has affected the cedi and it depreciated by 11 per cent between January 2018 and the same period this year,2019. The Cedi has also been trading high with other major trading currencies on the foreign exchange market.

Explaining the recent dollar rise in Ghana, Director of Treasury at the Bank of Ghana, Stephen Opata said some key factors are making it difficult for the cedi to stabilize.

Read also: BoG rules out fixed exchange rate regime to check cedi fall

Outlining the factors that contribute to the dollar rise in Ghana, Stephen Opata said the depreciation of the cedi last year was mainly driven by external development as well as some domestic pressure from the corporate and energy sectors and more recently re-alignment of the rate in the market.

"First is our foreign exchange cover from non-resident investors, repatriation of coupon payments and bond maturities, we have a significant international investor base who invest in our bonds and when coupons are due and the banking system is not able to meet the foreign demand to repatriate the coupons and maturity, then sometimes they will have to fall on the central bank and we use our reserve to meet that, an important source of pressure is also from the energy sector especially independent power producers obligations and oil import."

"Then we also experience some high offshore cost by this I'm talking about international investors on reported tight forex liquidity and we also have observed that corporate demand is relatively on the high side," he added.

Read also: Cedi to hit GHS6 to a dollar by 2022—Economist Intelligence Unit predicts

He concluded by saying "the statistical adjustment to re-align the rate that we did in the middle of January, this was base on a feedback that the Bank of Ghana's reference rate had diverged a little bit from the average inter-bank rate that has been quoted by the banks, so we adjusted the formula to remove some of these distortions."

"These development do not reflect the fundamentals then we expect recovery, look at the fiscal situation it is in pro significance, trade account is very solid two years consecutively of trade surplus, current account has also improved but this has been drag a little bit down because of the services account which continues to show high net outflow."

Foreign Exchange

Stephen Opata said the main focus of the Central Bank is to stabilize the currency and make it consistent with inflation.
"The exchange rate run in Ghana is the flexible exchange rate regime, and the focus should not be on targeting a number because if you do that then you may not be getting the whole picture so we are looking at is the currency should not be volatile." Ghana News

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