As the global price of crude oil surges, Ghana will require more U.S. dollars to import petroleum products, potentially impacting the value of the Cedi. The recent surge in oil prices—over 7% since Iran launched approximately 180 ballistic missiles at Israel—has raised concerns about a potential retaliation that could affect Iran’s oil industry.
Crude oil prices, which were around $67.50 per barrel at the end of September this year, climbed to as high as $77.50 during the first week of October before slightly cooling to $75.56 by Saturday, October 12. With nearly a $10 increase in prices within just a few weeks, oil importers will need to source additional dollars to cover the price differences for the same quantity of petroleum products.
Currently, the Bank of Ghana is maintaining its $120 million auction to oil importers. This means that importers must seek extra dollars from the market to purchase the same amount of oil, potentially increasing demand for U.S. currency. This uptick in demand could lead to a rise in the dollar’s exchange rate, further depreciating the Cedi. Presently, the dollar is being sold at approximately GH¢16.50 at forex bureaus and around GH¢17 for online transactions.
Should the Bank of Ghana fail to increase its dollar auction to oil importers or make additional dollars available on the interbank market, the Cedi is likely to experience further depreciation as the upcoming elections and Christmas approach.
Analysts are advising the Central Bank to closely monitor international developments, particularly regarding the ongoing conflict involving Israel, and to keep an eye on domestic economic movements. They stress the importance of timely interventions to maintain a relatively stable Cedi. Delayed action could cause the dollar rate to rise, diminishing the effectiveness of any subsequent interventions.
The Central Bank has improved its Gross International Reserves from 2.9 months of import cover in May this year to 3.4 months in August, providing it with some flexibility to intervene when necessary. This favourable reserve position is bolstered by last week’s approval from the International Monetary Fund (IMF) staff level, paving the way for the next tranche of IMF support expected in early December.
