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26.01.2009 Business & Finance

Analysts Worried Over Cedi Fall

By Daily Guide
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THE CURRENT rate at which the Ghana Cedi is depreciating has raised a lot of concerns among the public with analysts calling for a quick intervention before the trend gets out of hand.

With the budget expected to be ready by the first quarter of this year, government policy towards stabilizing the currency would also not be ready until the budget is in full force.

Since January 7 this year, the Ghana Cedi has been depreciating rapidly against the Dollar, declining by 2.96 percent last Friday. Rev. Ogbamey Tetteh, Head of Research at Databank told CITY & BUSINESS GUIDE that the Ghana Cedi stability would require tight fiscal and monetary policies.

“Yearly, this issue of currency stability rest on how strong the country's current account position is. The issue of Ghanaians appetite for foreign goods is a factor as depreciation can be reversed if imports reduce.” Rev. Ogbamey said.

“This is the worst performance recorded in the last three years,” Collins Appiah, a research analyst with Gold Coast Securities told CITY & BUSINESS GUIDE, adding, “The Ghana Cedi depreciated by 0.14 percent to the Dollar last year, hence this drop is alarming”.

The nation's currency is pegged to the Dollar and therefore all transactions are done in the Dollar. Even though the Cedi has regained momentum against the other major foreign currencies such as the Pound and the CFA, the rate at which the currency is declining against the Dollar raises much concern since the Ghana currency is pegged to the Dollar than the others.

Boakye Agyarko, former vice president of Bank of New York explained that by the middle of the year, the Ghana Cedi could trade at GH¢1.8 to a Dollar. As at last Friday the Ghana Cedi was hovering around GH¢1.25 against the Dollar.

When this happens, exporters would face difficult times since they would need additional funds to bridge the gap that the depreciation would create.

In addition, the nation would require additional funds to import crude oil irrespective of the world market price reaching as low as $30.

Reasons ascribed for the falling currency to the Dollar are disturbing and Rev. Ogbamey Tetteh describes the global credit crunch which has affected inflows as one of the worrying factors.

“Secondly, the uncertainty in the world given that the same financial crisis has pushed people to become risk averse.

“Last year, the volatile crude oil and food crisis that affected our foreign reserves and speculation that has led to people recently buying the Dollar are some of the reasons too,” he further stated.

Mr. Appiah also explained, “The uncertainty in the economy, as people are unaware of the kind of policies the new government will implement. Until the budget comes out, no one would know of the direction of the monetary policy.”

Mr. Agyarko corroborates this saying, “The signals sent by the new administration about the economy being broke is also one of the reasons. This has led to capital flight.”

“Other causes include the Obama flavour on the international market,” Mr. Appiah opined arguing that “Since Mr. Obama was elected President of the USA, the Dollar has regained its strength against the other currencies. It is expected to become stronger even as President Obama implements new policies to bring to live the US economy.” “The budget should come out with policies that would help improve exports, develop the capital market and curb inflation to drive interest rates down,” he noted.

By Charles Nixon Yeboah

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