EIU projects GH¢7.87 as end of year rate against US dollar
Cedi depreciates sharply in first quarter of 2022
Dean of the University of Cape Coast Business School, Professor John Gatsi, has indicated that the Economist Intelligence Unit’s (EIU) forecast that the cedi will end the year at a rate of GH¢7.87 cannot be an accurate prediction.
The EIU in the latest assessment of the Ghanaian economy stated that the cedi’s recent depreciation may end the year at a rate of GH¢7.87, signalling a slowdown in its poor performance.
However, Prof. Gatsi believes that it is too early to make the projection.
“We cannot predict from now until the end of the year the shock that may affect the economy, whether from the domestic economy or the international developments.
“We were not expecting that there will be some crisis between Ukraine and Russia. However, it happened, and it has its effect on the global economy and currency management, and we do not know what shock will come ahead of us,” he said.
From the beginning of the year, the cedi experienced its worst depreciation due to increased demand for foreign currency. The Bank of Ghana as part of mitigation measures increased the monetary policy to 17%.
EIU’S report on the cedi
The cedi has exhibited greater stability than was the case in the previous assessment, according to our measure of currency volatility for the three months to December.
Throughout the pandemic, the Bank of Ghana (BoG, the central bank) has sold foreign exchange in the spot and forward markets in order to stabilise the cedi (although the currency is nonetheless broadly liberal, with the BoG intervening only to smooth out excessive price discontinuity).
These foreign-exchange interventions by the BoG, combined with a 3.8% drop in export earnings in the past 12 months, have caused a steady drawdown of foreign reserves, which declined by 14% in the six months to the third quarter of 2020. In terms of import cover, the external buffer equates to an estimated 3.7 months, just above the three-month prudential minimum and limits the BoG's arsenal for ongoing currency support.
Professor John Gatsi