IMF gives Bank of Ghana a new strategy to halt the constant depreciation of the cedi, here’s what it said

The International Monetary Fund (IMF) has advised the Bank of Ghana (BoG) to keep the policy rate tightened as it has done in the last couple of months to prevent the cedi from depreciating.

IMF Chief Economist, Gita Gopinath

According to the IMF, any further reduction of the current BoG Policy Rate will spell doom for the local currency which continues to shake and depreciate against the major foreign

“Inflation expectations remain aligned with the central bank’s target and short-term real rates are above the historical average. This context suggests that the current policy rate is appropriate. The MPC should remain cautious as inflationary pressures could re-emerge and a relatively tight stance may help stabilize the exchange rate and reduce FX interventions,” IMF said.

Background

As of December 2019, inflation was pegged at 7.9 percent after dropping from 8.2 percent in the previous month (November) leaving the policy rate at 16 percent.

At the end of the third quarter of 2019, the cedi had depreciated by 13% against the US dollar.

For this reason, the government early this year set up a Foreign Exchange (FX) Development Committee as part of efforts to regulate the supply and demand of forex in the country.

The committee has been tasked by the President to investigate the structural causes for the depreciation of the cedi and to come up with strategic measures in fixing the problem.

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