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Ghana Special February 2020

Ghana: Cedi regains lost ground at the outset of 2020

The Ghanaian cedi kicked off this year on a strong footing, gradually regaining ground lost against the U.S. at the end of 2019. This came against the backdrop of easing concerns over the state of public finances and macroeconomic stability, and as demand for foreign exchange among Ghanaian business softened. On 21 February, the cedi traded at 5.32 per USD, marking a 6.8% appreciation over the same day in January. The currency was up 7.1% year-to-date, but down 0.8% year-on-year.

An improving macroeconomic backdrop supported the cedi at the outset of 2020. Greater fiscal discipline, a prudent monetary policy environment, commitment to economic reforms and improved currency management—including the introduction of forward-rate foreign exchange auctions—revived investors’ demand for the currency. This contrasted a bleaker macroeconomic backdrop at the end of 2019 when a larger-than-expected fiscal deficit for 2019, rising public debt and shrinking reserves weighed on the cedi. Moreover, the upcoming USD 3.0 billion Eurobond sale further bolstered the cedi in recent weeks, with investor demand for Ghanaian debt seemingly outpacing supply, and as investors banked on an expected increase in foreign reserves from the sale. Furthermore, slumping economic activity and travel restrictions in China due to the coronavirus outbreak and the lunar new year holidays seemingly curbed foreign exchange demand among Ghanaian importers, thus boosting the cedi.

Looking ahead, the cedi is expected to weaken somewhat before year-end, as demand for foreign currency among domestic companies recovers and uncertainty over fiscal discipline ahead of the presidential elections at the end of the year remains somewhat elevated. That said, healthy economic growth and a prudent Central bank should keep a lid on downward pressures to the cedi.

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