The cedi has recorded a depreciation of over 20% against major currencies such as the US dollar, euro, and British pound in September 2024. According to the latest Summary of Economic and Financial Data from the Bank of Ghana, the ongoing inflationary pressures have contributed to the weakening of the cedi.
Though the Bank of Ghana has been tightening monetary policy, inflation remains persistent, which weakens the currency’s value against major global currencies.
The cedi fell by 24.3% against the US dollar, 27.7% against the British pound, and 25% against the euro. The figures mark a significant deterioration from the beginning of the year when the cedi had only weakened by 1.3% against the dollar, 1.1% against the pound, and 0.5% against the euro.
A year earlier, the cedi weakened by 22.2% against the dollar, 26.1% against the pound, and 23.4% against the euro indicating a further marginal decline of 2.1%, 1.6%, and 1.6%, respectively.
Ghana’s external debt, compounded by a large import bill and demand for foreign currency to service these debts, has put additional pressure on the cedi. This creates a higher demand for US dollars and other foreign currencies, further depreciating the cedi.
Also, the global rise in interest rates and commodity prices has affected many emerging markets, including Ghana. This has led to capital flight and reduced investor confidence, further straining the local currency. Ghana continues to import more than it exports, resulting in a trade deficit.
With imports like fuel and machinery dominating the country’s import bill, the demand for foreign currencies outstrips supply, leading to further depreciation. The persistent demand for imports, including fuel and consumer goods, has increased demand for foreign currencies, putting pressure on the cedi. With imports outpacing exports, the trade deficit has widened, leading to further depreciation.
The growing public debt, both domestic and external, has made debt servicing in foreign currencies more expensive, adding further strain to the cedi. Additionally, global economic uncertainties, such as fluctuations in commodity prices (notably gold and cocoa), affect Ghana’s foreign exchange earnings.
More importantly, the Bank of Ghana’s monetary policy measures, including raising interest rates, have not been able to fully stabilize the currency amidst global financial volatility and local fiscal challenges.
The depreciation of the cedi has led to higher costs of imported goods, contributing to inflationary pressures in the country. As the cedi loses value, the cost of servicing foreign-denominated debt becomes more expensive for the government.
This continued depreciation poses significant challenges for the economy, and the Bank of Ghana has been working on tightening monetary policy and interventions to stabilize the currency. It impacts the cost of living, particularly for goods that are heavily reliant on imports. It also affects the government’s ability to manage external debt, increasing the local currency cost of debt repayments.
