Will Ghana sustain cedi rally?

Ghana's local currency, the cedi, has been on a rollercoaster ride in recent months, experiencing both steep declines and remarkable gains. The cedi saw a significant depreciation of about 29.3 per cent year-to-date up until October, causing concerns for various sectors of the economy such as inflation, trade, and investor confidence. However, interventions by the Bank of Ghana have helped stabilize the currency, resulting in a 5.7 per cent appreciation in the past two weeks. Oforiwaa Attipoe, Global Market Sales for Ghana at Standard Bank, shed light on these interventions during an interview with CNBC Africa. Attipoe highlighted the efforts of the Bank of Ghana to curb the excessive volatility in the currency market. With over $500 million-plus in interventions since the beginning of November, the year-to-date depreciation of the cedi currently sits at about 23.6 per cent. These interventions have been crucial in boosting the cedi's value and restoring confidence in the economy. Despite Ghana's engagement with the International Monetary Fund (IMF) under the Extended Credit Facility Program, the Bank of Ghana has maintained its independence in intervening in the foreign exchange market. Attipoe explained that as long as the central bank operates within the IMF's set metrics, particularly the minimum of about 1.8 months import cover, there should be no concerns regarding its interventions. As the festive season approaches and with elections on the horizon, businesses in Ghana are expected to increase their foreign exchange needs. However, Attipoe expressed confidence in the Bank of Ghana's ability to meet this demand. The central bank has implemented measures such as daily funded forward auctions and regular injections into the FX markets to ensure stability despite the heightened demand. Looking ahead, market expectations for the Bank of Ghana's Monetary Policy Committee (MPC) meeting are centered on the policy rate. With inflation trending downwards and currently at 22.1 per cent in October, there is anticipation that the MPC may leave the policy rate unchanged to monitor inflationary behavior. Any potential rate cuts are likely to be deferred to the first half of 2021 to assess the impact of recent currency movements and market conditions. Overall, Ghana's cedi rally is a testament to the resilience of the economy and the proactive measures taken by the central bank. While challenges persist, including the upcoming elections and increased FX demands, the Bank of Ghana's interventions have instilled confidence and stability in the currency market.