However, the coronavirus pandemic has caused the cedi to lose its strength.
As of the end of February 2020, the cedi appreciated by 4.5%. However, the cedi has depreciated by 3.9% from the beginning of March to date (April 22, 2020).
At the beginning of March, the cedi was trading at GHC5.296 to US$1 but is now trading at GHC5.514.
This is due to the reduction in exports, capital flight, and high demand for the US dollar lately.
This means that from year-to-date, the local currency has appreciated by just 0.33% against the US dollar and could enter depreciation territory if the demand for foreign currency continues to surge and COVID-19-induced reduction in exports also continues.
Finance Minister Ken Ofori-Atta said in March that the capital flight is a result of “related bearish emerging market sentiments and given the high proportion (about 25 percent) of local bonds held by non-resident investors”, with grave impact on Ghana’s foreign reserves.
The Director at the Institute of Social, Statistics and Economic Research (ISSER) at the University of Ghana, Prof Peter Quartey, said the cedi-depreciation is expected since the pandemic has affected global trade.
However, he added that the US$1billion Rapid Credit Facility from the IMF may help the cedi regain some strength.
He told B&FT that “We have foreign investors who have bought our bonds and they are moving out of the market because they are not very certain about our economy, and so they would rather disinvest and keep their money. All of these have led to excess demand oversupply of foreign currency. But with this US$1billion from the IMF, it will add to the supply of foreign currency and hopefully bring down the exchange rate.”
Before the negative economic impacts, the Ghana cedi was predicted by many analysts to perform better against its trading partners this year.
Data Bank Research, for example, said “We feel assured by the posture of the 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.
However, with the sudden turn of events, the cedi may suffer against its major currencies especially the US dollar and Pound Sterling.