Ghana: Tight Monetary Policies Cause Cedi Rebound

The decision by Ghana's central bank to inject $20 million daily into the foreign exchange market to shore up the local currency has since made an immediate impact with the cedi now on a rebound.

The cedi traded at around 4.4 cedis to the US dollar for most part of June, a situation that caused uncertainty on the foreign exchange market.

I will just advice speculators or those who want to take advantage of it [the cedi fall] to be careful

However, as at July 15 the local currency had recovered significantly with the interbank rate pegged at 3.31 to the US dollar after the Bank of Ghana increased the amount it injected into the economy to $20 million from $14 million.

The appreciation of the cedi by about 24 percent against the dollar over the past two weeks was linked to initiation of other "deliberate policies" by the central bank.

But some economists are not convinced the measures implemented by the central bank would be sustainable in the long run.

"There is something the country is giving up in order to have this. We are tightening liquidity, tightening monetary policy and the rest", an economist Godfred Bokpin said.

Tightening monetary policies would deny the private sector growth opportunities, he said.

However, after a Monetary Policy Committee meeting on Wednesday, the central bank said it intended to keep the cedi stable with the pumping of more foreign currency into the domestic market together with other monetary and fiscal measures.



"I will just advice speculators or those who want to take advantage of it [the cedi fall] to be careful, because last year the same thing happened and it's happening now", central bank governor, Dr Henry Kofi Wampah said.

There had been a deliberate policy; he said to limit the amount of cedis in circulation, which has resulted in some credit squeeze.

Meanwhile, despite of the appreciation of the local currency against the major trading currencies, particularly the US dollar, the annual inflation rate for June climbed to 17.1 per cent, from 16.9 per cent in the previous month, the government statistician announced on Wednesday.

The food and non-alcoholic beverages group recorded an inflation rate of 7.4 while the non-food group registered 23.6 per cent.

Transport alone in the non-food category recorded the highest rate of 25.5 per cent.

Economic analysts say the appreciation of the cedi ought to lead to a reduction in inflation.

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