Accra:The cedi experienced a 3.9% depreciation against the US dollar in September, erasing most of its gains from August and bringing its total losses for the year to over 10%. This depreciation, combined with rising US interest rates, high oil prices, soft gold prices, and a shrinking reserve cushion, poses a risk of increased inflation as the holiday season approaches.
According to Ghana Web, data from the Bank of Ghana indicated that the cedi closed September at GHS11.7159 to the dollar, down from GHS11.2556 at the end of August. It also weakened against the British pound and euro, closing at GHS15.5376 and GHS13.2845, respectively.
The currency remained stable at the start of October, maintaining its value against the dollar. However, the depreciation in September resulted in increased costs for businesses and consumers, with the dollar selling at an average of GHS12.15 in forex bureaus on October 1.
Databank Research noted that the cedi's year-to-date depreciation stood at 10.04% by late September. They attribute the currency's weakness to sustained demand for dollars from key sectors and relatively tight supply in the interbank market, despite the Bank of Ghana injecting US$445 million in forex support.
The situation is compounded by external factors such as the US Federal Reserve's recent interest rate hike, which strengthens the dollar and draws investment away from emerging markets. Additionally, rising oil prices, driven by geopolitical tensions and market adjustments, further strain Ghana's economy, as the country imports most of its refined fuel.
Ghana's shrinking international reserves, which fell from a peak of US$14.5 billion in February to US$12.0 billion by late September, add to the economic pressure. This reduction in reserves has led to concerns about the country's ability to maintain currency stability and manage inflation.
Gold prices, which have helped stabilize the cedi in the past, have also declined, affecting the country's economic outlook. The Bank of Ghana is relying on gold exports to support its reserves, but the impact of US monetary policy has depressed gold prices.
Domestic economic pressures, including government spending and debt obligations, further complicate the situation. The central bank is leveraging gold earnings to support the forex market, while remittances from abroad provide some financial cushion.
Despite these challenges, Ghana's import cover remains above standard benchmarks. However, the combination of declining reserves, softer gold prices, and potential decreases in cocoa output limits the central bank's ability to defend the cedi if economic pressures intensify. As inflation concerns grow, the Bank of Ghana continues to monitor the situation closely, with September's inflation figures expected to provide further insights.