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Solve Dumsor to sustain the cedi's stability- Joe Abbey

By Joy Business
Business & Finance Solve Dumsor to sustain the cedi's stability- Joe Abbey
JUL 6, 2015 LISTEN

Fix the current energy crises facing the country and that could help sustain the cedi’s marginal appreciation, Economist Joe Abbey has advised government.

The Ghana cedi for the first time this year has appreciated by a little over seven percent against the dollar.

Some analysts are attributing this to Bank of Ghana’s decision to release more dollars into the economy as well as donor inflows.

Dr. Abbey explains to Joy Business why he thinks paying attention to the energy crises would consolidate the cedis’ appreciation. “Market price outcomes are supposed to come from a meeting of demand and supply. If you have suffered a bad harvest in this case dumsor, which is impacting on your production then I’m saying your system is producing less goods than the capacity you’ve otherwise installed”, he said.

This in his view influences the importation of goods making the demand for foreign exchange high “because people are not producing enough”.

If the central bank cannot supply to cushion the increase demand of foreign exchange, there will continue to be a fall in the value of the cedi, Dr Abbey said.

But Head of Research at Group Ndoum, Kofi Ampah fears if the Bank of Ghana’s intent is to stabilize the cedi through the pumping of dollars into the economy then he fears it might be short-lived.

“For me I don’t think it is sustainable in the sense that if the Central Bank does not achieve the inflow from the foreigners in terms of investing in our short-term bonds then it can’t be sustained.

“But if the Central Bank should have a lot more of these inflows coming support its reserves, then from now then the cedi will be more stable in the third quarter to the last quarter of 2015”, he said.

Meanwhile some of Commercial Banks Joy Business spoke to attribute the appreciation to the release of more dollars onto the market.

Joy Business has also gathered that the development has been influenced by a sudden drop in demand for dollars by some corporate institutions.

Sources say some of the banks are even selling their “reserved” dollars to the Bank of Ghana.

This should mean there is more supply of dollars of some sought on the market which is fuelling this marginal appreciation.

Some of the commercial banks have even told Joy Business the bank of Ghana is giving them much more than they actually need.

The trend if continued could help reduce rate at which the general price levels of goods and services has been going up .

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