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ANALYSIS: Is the outlook for the Ghana cedi because of expected dollar inflows?

By Myjoyonline.com
Business & Finance ANALYSIS: Is the outlook for the Ghana cedi because of expected dollar inflows?
SEP 29, 2015 LISTEN

Barring any last minute challenges, Bank of Ghana’s reserves is expected to witness a significant increase in the coming weeks.

This will be influenced by the expected inflows from the cocoa loan syndication and the Eurobond which will come in from next month.

Due to this, managers of the economy have projected that the sharp depreciation which cedi suffered last month should be overcome in October.

But is this really the case or there are some challenging times ahead?

According to some analysts, the cocoa loan syndication and the Eurobond will bring in a little over $3 billion into the country. This will increase the Bank of Ghana reserves to almost 8 billion dollars possibly by the end of October. The central bank put its dollar reserves (as at August this year) at $4.5 billion.

The reserves could increase to a little 9 billion dollars by November or December, as government is also projecting that additional dollars will come in from the IMF and donor partners.

So for many analysts, if the cedi’s problem last month was really a supply issue, then the challenge could be over.

But checks on Ghana’s import bill for half year shows that the country is spending little over $1 billion every month. So the $9 billion injection expected by the end of the year could reduce to about $5 billion by end of year that is if there isn’t too much dollar demand to fund imports for Christmas goods.

Some analysts hold that the cedi’s problems could remerge from January next year because businesses will also be demanding more dollars to finance their imports or restock for the year.

Others say there might be the need to boost Ghana’s exports to improve dollar earnings if the cedi is to sustain its current stability.

No matter how it pans out eventually, one thing is certain: businesses will not be hoarding dollars to protect themselves from the cedi’s depreciation.

Meanwhile, Group Head of Research at Ecobank says the cedis’s stability can be sustiained if the economy is stabilized.

Angus Downie, says if the economy is doing well nobody would want to hoard dollars.

In a related development the IMF has also warned that the outlook for the local currency might not be that good because of the US central bank’s decision to start increasing its interest rate before the end of this year.

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