Ghana’s central bank 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 Bank of Ghana (BoG), Steven Opata, explained 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.
Cause of depreciation
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.