Cedi crying for attention as dollar demand surges

The Ghanaian cedi is facing fresh depreciation pressure as increasing demand for the US dollar begins to erode the local currency’s stability. After maintaining relative stability in November and December, the cedi is now losing value daily.

The cedi, which opened the year trading between GH¢14.75 and GH¢14.82 per dollar, has fallen to between GH¢15.02 and GH¢15.10 as of Monday, January 20, on the interbank market. Forex trader Kodzo Dziwornu Letsa told The High Street Journal that the depreciation could continue due to persistent demand for the US dollar. He stated, “Given the ongoing USD liquidity crunch and the unabated surge in demand for the greenback, I anticipate a gradual appreciation of the USD against the GHS.”

Historically, the cedi tends to lose value quickly in January, sometimes extending into the end of the first quarter. This seasonal trend, if left unchecked, could have severe consequences for Ghana’s economy, including higher inflation, rising public debt, and increased costs of goods and services.

Ato Forson, Finance Minister designate

Although the US dollar weakened internationally on the day President Donald Trump was inaugurated, following the delay of planned tariffs, the cedi may experience only temporary relief. The dollar’s decline is expected to be short-lived, meaning any respite for the cedi may be fleeting.

The pressure on the cedi could worsen unless swift action is taken by the government and the Bank of Ghana to address the rising demand for dollars. A failure to act promptly may encourage speculators to enter the market, further exacerbating the depreciation.

In previous months, the Bank of Ghana intervened by injecting dollars into the market to stabilize the cedi, but that effort has since ceased, resulting in a shortage of the dollar supply. An additional measure that could be considered is offering gold instead of dollars to corporate entities needing to repatriate profits. This could help reduce dollar demand and curb the cedi’s depreciation.

The current situation presents a significant challenge for the new government, which will need to act decisively to prevent further damage to the economy. Meeting dollar demand and stabilizing the cedi will be critical to restoring confidence among businesses and maintaining economic stability.

Source: thehighstreetjournal.com