According to market updates from the First National Bank the cedi has appreciated by more than 6% since the year started.
The report stated that since January 2020 the cedi has appreciated by 6.4% against the dollar.
An example is that when the year started, the cedi was trading averagely at GHC5.534 to $1. As of Thursday (February 20, 2020), the cedi traded averagely at GHC5.282 to $1. In January 2019 alone, the cedi had depreciated close to 3% against the dollar, and by 13.4 percent at the end of 2019.
Meanwhile, the bank has tipped the cedi to perform even better considering the BoG’s new FX auction strategy that is expected to pump some $240million into the forex market during the first quarter, in addition to government’s planned 7-year bond auctions.
The FX forward auctions calendar of the Central Bank is expected to reduce the incidence of speculation about the exchange rate.
This strategy means the BoG and banks agree on a specific price at which it will sell the dollar to them within a certain period of time. This also implies that because the banks are aware the BoG will sell FX at fixed prices within that period, there will be no need for a mad rush for dollars due to an anticipated loss or increase in the value of the exchange rate.
The FX forward calendar shows that the BoG is ready to inject $80million every month within the first quarter to meet the growing demand for dollars within this period. The Central Bank will inject $40million into the economy every two weeks after to shore-up the currency. Thereafter, when demand is no longer high (after the first quarter), with the exception of June 2020, US$50million will be injected every month. This means the BoG will inject a total of US$715million into the economy for the whole of 2020.
The First National Bank report validates an earlier report by Data Bank Research, which expressed confidence in the central bank’s FX interventions strategy and monetary policy decisions as key to maintaining the cedi’s stability.
“We feel assured by the posture of monetary authorities in maintaining a broadly stable Ghana cedi in 2020. Our optimism is grounded in the Bank of Ghana’s bi-weekly FX forward auctions, which will deepen forward trading and limit spot market pressures.”
“We view the higher-sized allotments for Q1-2020 as reflecting the Bank of Ghana’s commitment to increase forward activities in Q1-2020, when seasonal pressures tend to shock the spot market,” the Data Bank Research added.