Ghana Cedis

Currency analysts are divided over whether the cedi will remain at GH¢1.70 against the US dollar on the forex market this year.

Yvonne Mhango, an analyst with Johannesburg-based Renaissance, predicted that the cedi will rebound against the dollar, adding that gold prices are expected to increase significantly to an average of $1,738 an ounce this year.

Ms. Mhango said “strong correlation between the gold price and the country’s foreign-currency reserves suggests reserves will continue to improve in 2012, which would be positive for the cedi.”

But Derrick Mensah, an analyst with SIC FSL, believes the local currency would continue to depreciate on the inter-bank market in 2012 on the back of a combination of domestic and foreign factors.

“On the international front, debt crisis in the Eurozone and a rather slow paced recovery in the U.S and the U.K is expected to reduce the volumes of foreign participation in local securities. We anticipate upcoming bond auctions to be more dominantly subscribed by local investors, reducing the inflow foreign exchange into the economy.”

“Historically, the cedi has performed poorly in election and post election years this is because the apprehension on the markets causes investors to hold their investments in foreign currencies, mainly the dollar for fear of political risk.”

This, he explained, puts additional pressure on the local currency since demand leans more towards the dollar.

Sammy Kofi Ampah of Goldcoast Securities, on his part, told CITY & BUSINESS GUIDE that the outlook was challenging.  

“It is expected that if panic and investor confidence is not restored in 2012, the cedi might end the year above GH¢2.20 to 1$.”

He explained that the major foreign currencies were expected to maintain some stability against the cedi as Europe continues to find lasting solutions to the debt, manufacturing and employment issues.

He added that the cedi could incur loss of 10-15 percent against the dollar this year if spending pressures are not kept in check ahead of elections.

Some importers have expressed worry about the rate at which the local currency is losing value against the dollar which tends to increase the cost of imported items.

A spare parts dealer at Abossey Okai, Frank Amponsah, told this paper that the dealers have no option than to pass the cost to consumers in order to avert debts.

Over the past two weeks, the Bank of Ghana has injected close to about $600 million compared to a weekly average of $50 million onto the currency market to prevent the depreciation of the local currency.

A stable exchange rate allows foreign investors to invest their capital into Ghanaian equities while a strong local currency has the tendency to boost investment climate.

By Charles Nixon Yeboah

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