Ghana: Cedi continues to plummet following policy rate cut
The Ghanaian cedi plunged after the Bank of Ghana (BOG) unexpectedly slashed its key policy rate by 100 basis points on 28 January to a five-year low of 16.00% and signaled that further policy easing may be underway. On 15 March, the cedi traded at GHS 5.63 per USD, which was down 11.1% in month-of-month terms and 14.3% in year-to-date terms. The currency thus languishes as one of the worst performing currencies against the U.S. dollar so far this year.
The rate cut significantly weakened foreign investors’ appetite for cedi-denominated fixed income assets, which in turn reduced foreign exchange supply in the market. Furthermore, higher interest rates in the U.S. have weighed on demand for the cedi, as has strong demand for the greenback among local banks linked to dividend payouts to non-resident shareholders.
On 25 February, the BOG introduced new Ghana Interbank Forex Market Conduct directives in order to streamline the practice and procedure in forex trading and help stabilize the cedi. However, the directives, as well as a planned USD 800 million injection to the country’s reserves announced on 5 March, have yet to produce any tangible results in alleviating uncertainty among investors and the Ghanaian currency has thus continued to slide.
Meanwhile, Ghanaian authorities are working hard on a planned USD 3.0 billion Eurobond sale, which is needed to finance its budget and reduce borrowing costs. However, the weak cedi, coupled with uncertainty over elections and the country’s fiscal discipline—exacerbated after it leaves its four-year program with the IMF in April—has hit investor confidence. Nevertheless, at its latest review of the country on 15 March, S&P Global maintained a stable outlook with a B/B credit rating, citing strong growth prospects and keeping investors’ fears somewhat at bay.