The Bank of Ghana (BoG) has urged the public to remain calm as it implements measures to halt the rate at which the cedi is losing value against major foreign currencies.
As part of these measures, the central bank said it was increasing the supply of foreign exchange (FX) to banks in the short term to help meet growing demands for foreign currency for external payments.
He said in a note to Graphic Online on Friday August 12 that the increase in currency supply was necessitated by the growing demand for hard currency by non-resident investors leaving the jurisdiction.
The central bank said the high price of crude oil has also astronomically increased the country’s oil import bill, forcing the bank to provide more hard currency to meet demand.
The BoG’s rating and assurance follows public outcry over the cedi’s sharp decline in value recently.
The cedi’s depreciation has deteriorated sharply this year as demand for the currency has exceeded supply at a time when high debts and low investor confidence have prevented the country from accessing the international capital market to borrow.
The cedi lost more than 20% of its value in July.
It is now trading above 9.4 GH¢ per US dollar.
Last week, the Ghana Traders Association (GUTA) called for pragmatic measures to halt the slide, noting that businesses were bleeding from depreciation.
The Association of Ghana Industries (AGI) also raised similar concerns, citing the impact on operating costs.
In response, the BoG said various factors, including the rebound in US dollar strength, were causing the cedi to depreciate faster.
“The US dollar strengthened, weakening other currencies, including the cedi.
“Year-to-date, the British pound has weakened by 10.8% against the US dollar, while the euro has also weakened by 10.1%.
“Countries similar to Ghana are all experiencing steep depreciation, averaging 11.5% year-to-date,” BoG said.
He listed the other factors to include investor reaction to the deteriorating economy, non-renewal of maturing bonds by non-resident investors, high crude oil prices and loss of market access. outside for loans.
Below is the full commentary from the Bank of Ghana
Reasons for currency depreciation in 2022 so far and measures taken
• The strength of the US dollar: The US dollar strengthened and weakened other currencies, including the Ghanaian cedi. Since the start of the year, the British pound has weakened by 10.8% against the US dollar, while the euro has also weakened by 10.1%. Countries similar to Ghana (Ghana’s peers) are all experiencing steep depreciation, averaging 11.5% year-over-year. ?
• Investor reaction to credit rating downgrade: Ghana’s sovereign credit rating downgrade since January 2022 has caused an investor reaction and led non-resident investors to prematurely exit our bond market. When they decide to leave, the Central Bank must provide them with dollars to get out of the bond market, which puts enormous pressure on reserves, leading to a depreciation of the cedi. ?
• Non-renewal of maturing bonds: as part of the adverse investor reaction when bonds held by non-residents reach maturity, they are not rolled over. These bonds are held in local currencies and a decision by non-residents not to roll over results in the Central Bank providing dollars to help outsource these funds, a situation that puts pressure on the currency. Historically, non-resident turnover of maturing bonds held by non-residents has exceeded 80%. This year’s figure is much lower and has also added another layer of non-resident demand pressure, leading to the cedi depreciating. ?
• The sharp rise in crude oil prices and its impact on the oil bill: The international price of crude oil rose sharply during the year. This means that our crude oil and petroleum products bill has increased significantly. The oil and petroleum product import bill led to a reduction in the trade surplus. The Central Bank has to provide more dollars for our oil import bill, which has had a negative impact on Central Bank reserves and therefore the Central Bank’s ability to weather these shocks. ?
• Loss of external financing: With the downgrading of the agency’s rating, Ghana was unable to tap into the Eurobond market. Over the past three years, Ghana has steadily raised $3 billion in the Eurobond market to help fund the budget. The loss of market access this year means there will be no further capital injections, which has created a huge foreign exchange supply problem and limited the Central Bank’s ability to provide increased support to the currency. Intervention data shows that BOG’s presence in the market this year has so far been lower than in 2021. ?
What the Bank of Ghana is doing to remedy the situation
• Gold purchase program to increase foreign exchange reserves. ?
• Special Currency Auction for Bulk Distribution Companies (BDC) to help import petroleum products. ?
• Bank of Ghana is in the process of entering into a cooperation agreement with mining companies to provide the BOG with the ability to purchase gold as soon as it becomes available.
• The Bank of Ghana supports the banking sector with foreign exchange liquidity to help meet the demand for external payments.
• The USD 750,000,000 Afrexim loan facility recently approved by Parliament, once disbursed, will strengthen the country’s foreign exchange position and help restore confidence. ?
• Crédit Cacao is expected in the last quarter of the year. This facility will also help provide more foreign currency to help deal with the cedi’s depreciation. ?
• In the short term, we expect that when the IMF program is finalized, it will also do much to restore confidence in the economy and stimulate portfolio flows. “These measures will greatly contribute to increasing the Central Bank’s foreign reserve position. ?
Bank of Ghana August 11, 2022