https://www.myjoyonline.com/cedi-faces-further-fall/-------https://www.myjoyonline.com/cedi-faces-further-fall/
Banking

Cedi faces further fall

The Bank of Ghana could be compelled to raise interest rates for the second time this year if the cedi continues to fall under increased demand for foreign exchange by the corporate sector and importers analysts have told the Business & Financial Times. The Central Bank’s monetary-policy committee (MPC) is due to meet this month to review the impact of a decision to tighten policy in February, and determine if further action is needed to support the cedi and curb inflationary pressure. At its last meeting, the bank raised its key lending rate by 100 basis points to 13.5%, the first time in three years, to draw-down excess liquidity and avert further weakness in the exchange rate. “Monetary policy has already been in ‘overtime mode’ with the central bank reported to have supplied more than US$1 billion to the market (so far this year) to support the currency. Should demand for hard currency continue to rise, the MPC may be compelled to increase the policy rate further to keep these volatile pressures in check,” said Nii Ampa-Sowa, Vice President and Head of Research at Databank Asset Management Services Ltd. “That said, having raised the rate by 100 basis points in February, the committee’s natural inclination would be to wait till its effect is fully transmitted into the system,” he added. The cedi has so far fended off the hike with a further depreciation of 1.4% against the US dollar, its main trading currency, since the decision was announced on February 15th. By the end of last month, the cedi had slumped by 8.5% against the greenback since the start of the year, according to Bank of Ghana data. “If the depreciation persists, with the effect that it will have on prices of imports, we’re likely to see an increase in the [policy] rate,” said Yaw Adu-Koranteng, research analyst at Gold Coast Securities Ltd. Recent volatility in the exchange rate has been traced to a surge in foreign exchange demand by the corporate sector and importers who have been buying dollars to meet their foreign currency obligations. Bank of Ghana Governor Kwesi Amissah-Arthur has said there is a need to control rising demand for consumption imports, which last year cost US$3billion in foreign exchange and contributed to a widening of the trade deficit by 8%. “We’re beginning to see an increasingly import-dependent economy. If the goods are meant for manufacturing, which will fuel future growth, then that is good; but we need to curb our demand for consumption imports,” he told a media conference in February. But part of the appetite for dollars is the result of payment for services procured by mining and oil companies from overseas suppliers, which investment firm Renaissance Capital said was able to offset trade-deficit improvements from the export of oil in 2011. Mr. Amissah-Arthur has also argued that there’s a bit of speculation around the cedi, which is extending the losses beyond what would be occasioned by the basic sources of its weakness. In recent weeks, the Central Bank has pushed up Treasury yields to divert speculators’ interests into government paper. In March, the 91-day Treasury rate rose to 12.61% from 12.1%, while the 182-day bill rate increased to 12.86% from 12.43%. Nii Ampa-Sowa said it is possible that higher yields could potentially support the local currency if the instability stemmed from speculation. “[But] we do not think this likely. This is because the source of the currency’s instability is reportedly from the corporate sector - mines and oil-marketing companies - who require foreign exchange to meet their obligations,” he added. Meanwhile, inflation subdued In February, headline consumer inflation dropped back to 8.6% after a slight increase to 8.7% in January, according to the Ghana Statistical Service. The fall was helped by declines in both food and non-food inflation, which touched 4.3% and 11.2% respectively. The reading appeared to show that weaknesses in the cedi were yet to have a significant impact on overall consumer prices.

DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.
Tags:  


DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.



WhatsApp Icon