The Bank of Ghana says the uptick in the local currency, the cedi (Ghana’s currency) is expected to keep gaining strength as uncertainties related to the upcoming elections fade and the central bank builds up more foreign currency reserves.
The cedi has weakened against the US dollar for sometime now, however analysts have forecasted modestly between now and December elections following steep falls earlier in the year.
According to a press statement from the central bank’sMonetary Policy Committee(MPC) meeting last week, to consider developments in the global economy, domestic economic conditions, and deliberate on the appropriate monetary policy stance, the committee noted that “The cedi’s rebound observed recently should continue with the dissipation of election-related uncertainties and the improved foreign exchange buffers accumulated by the central bank.
A combination of economic uncertainty brought about by the upcoming elections and the high demand for foreign exchange has led to an exchange rate path that is slightly deviated from the fundamentals. With strong macroeconomic policy implementation and improved foreign exchange availability, the economy should observe a realignment of the trajectory of the exchange rate with the fundamentals.”
Further, the committee adds that banks in Ghana have prepared well to handle any challenges from the restructuring of external debts.
“Commercial banks have accumulated enough capital buffers to withstand the effects of the external debt restructuring. The latest macro-prudential risk assessment showed that the impact of the Eurobond restructuring would be minimal, given the pre- emptive provisioning made by banks to account for potential impairments. Banks are therefore expected to continue to remain stable and support economic growth going forward.”
Meanwhile, the Committee decided to maintain the Monetary Policy Rate (MPR) at 27.0 percent.
The Committee also indicated that economic activity in Ghana continues to improve, with the Composite Index of Economic Activity growing by 2.2% in September 2024, compared to a 0.4% contraction in 2023. Key drivers include increased port activity, consumption, construction, credit growth, and tourism.
Business confidence improved in October, supported by firms meeting targets, while consumer confidence remained steady. The Purchasing Managers’ Index (PMI) also rose to 50.6, indicating better business conditions.
However, inflation increased to 22.1% in October from 20.4% in August, driven by food prices and currency effects, though it eased significantly from 35.1% in October 2023.
Core inflation, excluding energy and utility prices, dropped significantly from 36.2% in October 2023 to 21.4% in October 2024, showing improved price stability. Inflation expectations for the next year continue to ease due to strong policies.
Short-term interest rates also fell. Treasury bill rates for the 91-day and 182-day instruments declined to 25.80% and 27.01%, respectively, in October 2024, compared to 29.40% and 31.37% in 2023. The 364-day rate dropped to 28.70% from 33.16%. Interbank lending rates and average bank lending rates also saw slight decreases, improving borrowing conditions.
By Eugene Davis
