The recent free fall of the Ghana Cedi is largely due to the increase in new exchange interest rate, emerging market pressures and certain conditions from the IMF bailout programme, Vice President Dr. Mahamudu Bawumia has explained.
The Head of the Economic Management Committee (EMT) at a Town Hall Meeting Wednesday in Accra admitted that though the 8.4 per cent depreciation recorded in 2018 is not the worst in the past years, particularly under the previous government, there have been some challenges with the fundamentals.
He explained that the actual cost of the depreciation was as a result of the time inconsistency of an IMF prior action on the reserves target.
He said, Ghana is under an obligation to meet some seven conditions by March from the IMF before the country exits the programme.
“At the end of January as part of the set prior action, to get to the IMF board and the completion of the IMF Programme, the IMF gave Ghana seven conditions to complete before March 15. One of the conditions that the bank of Ghana has to meet was to increase its net international reserves by some 800 million dollars,” he said.
This, according to Dr. Bawumia means that the BoG had to halt the selling of foreign currencies which saw an increase in the demand causing the local currency to fall.
“The BoG could not sell any foreign exchange, they had to essentially hold their hands in the back. So demand for foreign currency was not meant by supply as it normally happens on a day-to-day basis. I know if the demand is greater than the supply and the supply isn’t coming, prices will go high and this is exactly what was happening.
Thus, the reversal of the cedi in March, according to him, was not influenced by the Central Bank as many reports suggest the $800 million was injected into the market to stabilize the cedis.
“The start of 2019 has been characterized by another sharp sudden depreciation of the cedi which was largely in reverse. Within a week, the cedi went up to 5.9 to the dollar and then it drifted back to 5.07 and even was threatening to go below 5. But this is really an unprecedented development. You don’t always see such a retreat when the exchange rate depreciates,” he noted.
He, however, explained that the cedi’s appreciation in the second quarter of March was because “the market corrected itself” in the midst of uncertainties, revealing the fact that the fundamentals are much stronger than expected.
He insists that the “weak” economic fundamentals forced the previous John Mahama government to run to the IMF for cover but the current government has been able to successfully exit the Programme due to the strong fundamentals.
“Indeed the strength of Ghana’s fundamentals were confirmed on March 16 by Standards and Poor’s Global which affirms Ghana’s sovereign rating as B with a stable outlook. This was, in fact, the first upgrade by Standards and Poor’s Global for Ghana in 10years,” Dr. Bawumia intimated.
By: Kekeli Kuatsenu/awakenewsonline.com