Find long-term solutions to address cedi depreciation, stabilize currency - Economist

Cedi struggles against US Dollar

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An economist with Databank Research, Courage Martey has called on government to critically look into factors that have resulted in the sustained depreciation of the cedi against major trading currencies.

According to him, this is necessary to propose the right solution to stabilize the cedi’s performance and strengthen it.

The local currency since the start of this year has witnessed persistent depreciation, particularly against the US Dollar – a move that has affected import trade, fuel price hikes among others.

In an interaction with Citi Business News, Courage Martey said pumping dollars into the economy to address the depreciation would rather be a short-term solution as compared to a long lasting one.

“If you go by historical behaviour of exchange rates, in the short term, we expect some positive impact because the situation we face today is a demand and supply imbalance. On the demand side, we’re seeing the Central Bank announcing a squeeze in Cedi liquidity that should help cut the demand for forex over the weeks and months ahead.”

“The supply side should now be propped up by this US$2 billion expected over the next six weeks. So that should help reduce the imbalance and in the short term, should help restore some stability. But if you extend the analysis period into the future, this definitely is not a sustainable way to keep the exchange rate stable.”

The economist further admonished government to place primary focus on addressing the cedi’s performance and stability for a lengthy period.

“We still would have to go back to the drawing board and look at how to anchor the cedi stability. Bringing down inflation is key so that there could be confidence in the value of the local currency. Also, improving on our exchange rates earning capacity. Central Bank’s gold purchase program is another. Increasing local content along the value chain of our extractive sector is another key way,” he explained.