Halting cedis decline: BoG rolls out tough measures - Set up task force to monitor forex bureaux
The Bank of Ghana has stepped in to directly absorb the foreign exchange needs of corporate institutions as part of a series of measures to contain the depreciating cedi.
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This is to reduce the pipeline demands for foreign exchange from the commercial banks, and effectively halt the depreciating local currency. The Ghana Cedi has so far depreciated by 14.6 per cent against the US dollar, is trading at GH¢13.9480 and selling at GH¢13.9620 against the dollar at the interbank market. At some forex bureaux in Accra, the dollar was being bought at GH¢14.80 and sold at GH¢15.00 as of yesterday.
The central bank is also working with the Ghana Association of Banks to streamline documentation requirements for foreign payments to minimise the incentives to resort to the informal markets.
The Bank of Ghana has also banned all forex bureaux from advertising their rates outside their premises and on social media platforms. At a news conference in Accra, the Governor of the Bank of Ghana, Dr Ernest Addison, said the central bank was working with the Financial Intelligence Centre to curb the operations of illegal foreign exchange market operators.
The cedi’s depreciation had been driven by increased foreign exchange demand for imports, payments to private power producers, speculative activity on the part of buyers of the dollar, and a decline in cocoa earnings, Dr Addison said.
Diverting foreign exchange
There are also indications of increased pressures from importers diverting foreign exchange demand requirements into informal markets, which has increased speculative demand for foreign exchange.
“The bank has set up a task force to monitor all the forex bureaux to ensure compliance,” Dr Addison said. “The foreign exchange market is also affected by sentiments and pronouncements made in this election year, and we urge all to manage pronouncements which weaken confidence in the local economy,” he added.
Dr Addison announced the measures after the conclusion of the 118th meeting of the Monetary Policy Committee of the bank where it maintained its key benchmark interest rate policy at 29 per cent.
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“The bank remains fully committed to provide stability in the exchange rate for the cedi,” the Governor said. He said the central bank had adequate reserves to manage shocks in the foreign exchange market, having added over $600 million to increase its reserve levels over the first five months of the year.
“The bank has enough foreign exchange (forex) reserves to support the market, and economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs,” he said.
Gross reserves improve
The country’s stock of gross international reserves as at April 2024 this year increased to $6.59 billion, representing 3.0 months of import cover. The improved reserves position is also backed by strong liquid monetary gold levels of over 26.6 tonnes (estimated at US$2.1 billion) as a result of the successful domestic gold purchase programme.
Dr Addison emphasised that the strong build-up of about $2 billion since the beginning of Ghana's 17th IMF programme, along with the disinflation process, progress on fiscal policy and consolidation measures; current account balances and the external debt restructuring process had all contributed to providing enough buffers to support the exchange rate.
Toll on businesses
Companies in manufacturing, commerce and other sectors said the persistent depreciation of the local currency against major international currencies, especially the dollar, was slowing their businesses and pushing a lot of cost on the consumer who must pay higher for products whether essential or luxury.
The Ghana Union Traders Association (GUTA) and the Chamber of Automobile Dealership Ghana (CADEG) said the depreciating cedi had pushed the cost of goods and services higher, making it difficult for businesses to stay afloat.
The cedi is in a record-breaking weakening cycle, depreciating 14 per cent against the dollar this year alone, fuelled partly by foreign exchange supply shortfalls. The local currency, which was trading in January at GH¢11.97 to a dollar on the interbank market and at GH¢12.33 in the retail market, was being bought at GH¢13.9000 and sold at GH¢13.9140 to the dollar at the interbank rate as of Thursday, May 23, 2024.
Safeguard for businesses
Analysts say the unsustainable levels of public debt and fiscal deficit, the depletion of foreign exchange reserves to less than three months of import cover, and the high double-digit inflation since 2021 underlie the sharp depreciation of the cedi.
An economist and markets analyst suggested that business owners could reduce the impact of the exchange rate fluctuations on their businesses if they utilised the forwards forex market and increased the use of local raw materials or supplies where possible.
The use of forwards forex market would help businesses to lock in exchange rates during times of uncertainty, especially as the cedi appears to be a depreciation-bias currency, the analyst, who pleaded anonymity, said.
“This, for many, will cushion traders from extreme forex uncertainty, minimise the risk of capital erosion and ultimately deepen Ghana’s forward forex market,” the analyst stated.
Again, the analyst said, the increased reliance on local raw materials would also cushion working capital against unanticipated shocks to the exchange rate, and limit disruptions to business continuity.
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Furthermore, businesses could explore the option of by-passing the US dollar and going directly through the currency of import origin. For instance, the analyst stated, businesses that imported from China but had to first purchase the US dollar could minimise that cost by directly trading in the Chinese Renminbi.
However, that required sufficient supply of the Renminbi to support its tradeability, the analyst stressed.
Writer’s email:suleiman.mustapha@graphic.com.gh