Kudos BoG, but keep eye on ball

The Ghana cedi has begun a gradual rebound, claiming its lost value against the dollar barely two weeks after the Bank of Ghana (BoG) announced remedial measures to check its fast decline.

The cedi was trading at GH¢3.929 to the dollar as of Monday, July 6, up from GH¢4.4051 to the dollar on June 22 when it peaked.
Among the remedial measures adopted by the BoG is the increase of dollar sales on the interbank market from a weekly US$14 million to a daily US$20 million in a renewed bid to bolster the local currency.

The bank is also considering opening its two-year domestic bond auctions to foreign investors this month in a bid to attract more offshore funds and reduce its borrowing costs.

Since the reported announcement of these measures in the Daily Graphic and its sister paper the Graphic Business, the cedi has remained firm and been making gains for the past two weeks after plunging almost 22 per cent in the first half of the year due to the shortage of dollars and concerns over a weak economy.

It is refreshing to see the local currency make a strong comeback after losing more than 20 per cent in value against the dollar.
This, for the Daily Graphic, is a major success for the monetary policy authorities, for which we applaud the BoG for rising up to the task and stemming the cedi from further decline.

We also commend the BoG Governor, Dr Henry Kofi Wampah, for the bold initiative in announcing the steps being taken to control the slide of the cedi.

When the BoG raised its key benchmark interest rate at the last Monetary Policy Committee meeting, the general opinion was that interest rates were generally too high and the cost of borrowing too burdensome.

The action by the central bank to raise the policy rate was, therefore, seen to be contrary to public opinion and attracted a lot of criticisms.

It would have been suicidal for the committee to lower the policy rate in the face of a fast depreciating cedi, rising inflation and inflation expectations, continued external pressures, the impact of increases in US interest rates with the risk of destabilising capital flow reversals, among other factors.

We are particularly pleased with the efforts of the BoG because even in the face of the barrage of criticisms from skeptics, it held firm to its measures to ensure that the cedi is stable.

The Daily Graphic, therefore, calls on all, particularly politicians, to allow the BoG to operate freely in order to meet one of its key mandates of exchange rate stability.

The market has responded swiftly to the measures adopted by the BoG and we expect the fiscal authorities to complement the efforts of the bank in keeping the cedi in check.

We reiterate that while the BoG’s measures are stemming the cedi from further decline, the measures could be enhanced if the government takes tough decisions to rein in public spending and improve productivity by accelerating the delivery of offshore gas to power plants.

This is because, as of the end of the first quarter, the country had a balance of payment (BOP) deficit of US$850 million which had to be closed.

We cannot continue to rely on the short-term offshore supplies which, for us, are unsustainable.
The Daily Graphic believes that until the structural defects in the economy are corrected, the gains made by the cedi will be shortlived.