The cedi may have faltered in recent weeks, declining in value by about 13%, but an economist insists that there is no cause for alarm.
Bloomberg has reported that an upsurge in dollar for imports by businesses ahead of the Christmas season is largely the cause of this renewed depreciation of the cedi. This fall has halted the strong ride the local currency has enjoyed in recent months against other international currencies.
A Temporary Fall
But despite the significant fall, economist and Head of Macroeconomic Research at GCB Bank, Courage Boti, says the Ghana cedi is not as weak as touted.
The economist explains that the currency is simply experiencing a temporary shake, not a structural collapse, and hence there is no need for the Bank of Ghana to forcefully intervene with its forex reserves.
“It is a temporal or transitory issue, and these are things you don’t want to deplete your reserve on, so I think they are doing what is appropriate at this time,” he remarked in an interview monitored by The High Street Journal.
A Currency With Strong Fundamentals
Courage Boti argues that the cedi still has strong fundamentals supported by a solid mix of economic fundamentals.
He narrates that there is a tight monetary policy stance keeping inflation in check. He adds that inflation has been sharply declining, receding far faster than many expected.
The country’s current account balance is likely to record a surplus by the end of the year, while the Central Bank still has adequate forex reserves. There is also renewed investor confidence, with offshore players positioning themselves for Ghana’s anticipated new bond issue.
These factors, Courage Boti says, together support a continuous stability of the cedi.
“Fundamentally, the cedi is supported by the fiscal position, the monetary stance, which is still very tight, where inflation is currently, then we are also seeing the growth pulse. We are seeing how inflation has receded sharply, and of course, all the other factors. We have a current account surplus, and it’s likely to close the year in surplus. Offshore investor sentiments are beginning to pick up again, as you see offshore investors preparing in anticipation of a new bond issue,” he explained.
Speculation and Sentiments Driving Depreciation
The recent fall of the cedi, Boti stressed, is driven more by short-term market pressures than deep economic weakness. He dismissed the idea of burning through foreign reserves to defend the currency, calling it an unwise move.
“There is the element of speculation as well, so there is an element of market sentiment, there is an element of speculation in there, all of that plays a role, so it would always exaggerate the movement in the exchange rate, and it would not reflect the real fundamentals because of these intervening factors,” he added.
Why Ghanaians & Business Should Care
For ordinary Ghanaians, the difference between a temporary dip and a weak currency is critical. A structurally unsound cedi could spiral inflation, raise prices, and confidence would spiral out of control.
This has consequences for the household’s cost of living and businesses’ cost of doing business.
Despite the development, Courage Boti believes stability will return, provided regulators keep markets disciplined and resist panic-driven policy choices. For him, the cedi may be bending, but it is not breaking.
