Bank of Ghana Says External Factors Threaten Cedi’s Stability

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A report by Ghana’s central bank has revealed that the cedi’s depreciation against the US$ is expected to continue throughout the year, as global events show more external threats ahead.

The report which assesses the impact of external shocks on Ghana’s economy, highlighted that anexpected 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 stabilizing 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, 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.

 

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