[ 2019-03-05 ]

Bank of Ghana to inject $800m into reserves efforts to stabilise cedi
The Bank of Ghana (BoG) says it will add a minimum
of $800 million to the country’s reserves
this month to stabilise the cedi against major
international currencies, especially the dollar.

The Head of Financial Markets at the central bank,
Steven Opata, told the Daily Graphic that the
accumulation of more dollars would help increase
the net international reserve (NIR) to around $4
billion, enough to provide confidence in the
system and help stabilise the free fall of the
local currency.

Since January this year, data from the central
bank show that the cedi has lost some 3.6 per cent
of its value to the US dollar as the international
investor community sold some of their investments
in local securities and moved their funds
overseas, partly causing the cedi to slide.

That caused some apprehension among the business
community, prompting various private sector
associations to urge the central bank to find a
solution to the depreciation to help abate the
impact on their operations.

In an interview on how the BoG was addressing the
turbulence in the currency market, Mr Opata said
one of the strategies it was adopting “is
rebuilding reserves to face more systemic shocks
that may come”.

“I am very optimistic that it will not be
long before we see stability and some recovery in
the cedi,” he said.



He explained that BoG research indicated that the
recent depreciation would normalise in days, as it
was not caused by weak fundamentals and external
shocks but by local sentiments that tended to
correct with time.

“In this first quarter, the movement in the
cedi is not caused by external factors because the
external sector has been quiet,” he said,
citing recent signals by the Federal Reserve (Fed)
of the United States of America that it would be
increasing its rates, a situation that usually
negatively affected the currencies of emerging and
frontier markets such as Ghana.

Last year, the BoG blamed the cedi’s
increased vulnerabilities on hikes in Fed rates,
which it said reduced non-resident investor
appetite in government bonds, causing them to
repatriate their coupons and maturities in ways
that posed shocks to the local currency.

Mr Opata was confident that rebuilding the
reserves was the best option to help assure the
international community that the central bank was
ready to respond through increased dollar sales
whenever the need arose.

Measures to build reserves

Asked how the bank intended to build the reserves,
he said “there are a number of transactions
in the pipeline that should approximately add
about $800 million or more by the end of the first
quarter”.

“As you know, as you are building, you are
also spending, but what we are trying to do is at
least build our reserves so that the NIR remains
at the same levels at the first quarter as it was
as of December 2018,” he stated.

Last year, the central bank used about $560
million to support the cedi against shocks and
that saw the net international reserves declining
to $3.8 billion in December last year.

Although Mr Opata declined to discuss the
transactions in detail, he said “some flows
will come from cocoa, some other financial
transactions that we are doing will also add some,
oil exports should also add some this quarter.

So it is largely an export and some financing
story,” he said.

Cause of depreciation

On what was causing the ongoing depreciation of
the cedi, Mr Opata said BoG’s research
showed that the current movements were largely
driven by local sentiments arising out of
increased demand for forex by non-resident
investors in the country’s bonds, increased
demand by the energy sector to support imports and
high offshore proceeds reported by the banks.

He also mentioned increased demand for forex by
corporate bodies seeking to repatriate their
profits and dividends and a wrong interpretation
of the BoG’s recent adjustment to realign
its rate and the average interbank exchange rate.

He said although the adjustment was to smoothen
out rough edges to help create efficiency in the
forex market, “it appears that the banks
overreacted to that adjustment”.

“They saw that as a weakening of the
currency and that is what started this rapid
movement that we saw in the currency,” he
said.

IMF exit

Commenting on developments on the currency market,
an economist and Senior Research Fellow at the
Institute for Fiscal Studies (IFS), Dr Said
Boakye, observed that the cedi was suffering the
consequences of heightened repatriation of bond
proceeds, as foreign investors feared the health
of the economy would not remain intact after the
exit of the International Monetary Fund (IMF) in
two months.

He said although the government was emphatic that
Ghana would not extend the Extended Credit
Facility (ECF) with the IMF when it ended next
month, “people are not having a clear
picture about the fiscal stance” in the
absence of the fund.

Uncertainty around the government’s ability
to maintain fiscal discipline without the IMF was
now causing some of the investors to exit the
domestic bond market, leading to increased
shedding in the value of the local currency
against its foreign counterparts, he told the
Daily Graphic.

Given that investors normally converted their
funds into foreign currencies to be able to
repatriate, he said, the “panic
withdrawals” were increasing the pressure
that the local currency normally endured in the
first quarter of every year.

However, Mr Opata said the central bank did not
have any evidence to support that assertion.

“What I can assure you is that we are not
going to sleep after the IMF is gone,” he
stated.

Source - Graphic

... go Back