[ 2019-03-01 ]

More External Threats Ahead For The Cedi – BoG Report
A report by the Bank of Ghana that assesses the
impact of external shocks on Ghana’s
economy has revealed the cedi’s
depreciation against the US$ is expected to
continue throughout the year, as global events
show more external threats ahead.

The report, titled ‘The Effect of External
Conditions on the Economy of Ghana’, is
authored by Philip Abradu-Otoo and Bernard Jagre
Walley of the BoG’s Research Department.

It says an expected slowdown in the U.S. and
Chinese economies, alongside policy rate hikes in
the U.S., strengthening of the US$ and higher
crude oil prices will all impact Ghana’s
economy negatively – leading to a
“significant deterioration in the exchange
rate”.

“The slow-down of the world’s two
biggest economies will dampen growth in emerging
and developing economies, including Ghana, which
will result in capital outflows; whereas policy
rate hikes in the US will attract investors, also
triggering capital outflows from Ghana to the U.S.
and resulting in high demand for the dollar, while
a surge in oil prices will, although stabilising
growth, further increase inflation – which
will also culminate in a sharp depreciation of the
cedi.

“The results show that a simultaneous
slowdown in the world’s two largest
economies will dampen GDP growth in Ghana, induce
a significant deterioration in the exchange rate,
and induce a marginal increase in the domestic
inflation rate and a sharp rise in interest
rates.

“It further says a surge in oil prices leads
to a relatively stable GDP growth. Inflation
declines initially but picks up marginally after
three quarters, while the exchange rate
depreciates sharply,” the report states.

Commenting on the report, financial analyst Dr.
Richmond Atuahene told the B&FT that the local
currency’s future looks gloomy

“If you look at the currency depreciation,
it doesn’t look good. It may depreciate
more than 15 percent this year. And once the
interest rate in America goes up, people will
disinvest their bonds and rather go and invest in
the U.S. – and this will definitely put
pressure on the cedi. So, all the report is saying
is that it doesn’t look good from the
currency point of view,” he said.

The report further shows that about 40 percent of
the variation in Ghana’s real GDP growth is
accounted for by external influences. What this
essentially means is that any activity — be
it positive or negative —which happens with
Ghana’s trading partner countries can
affect economic growth by 40 percent.

Source - B&FT

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