The Ghana Cedi finally crossed the 10 percent depreciation mark on Monday when it lost 69GHp to the US Dollar, triggering fears that the Monetary Policy Committee of the Bank of Ghana's aim to check the decline of the local currency may not be realized soon.
It again lost 2GHp to the US Dollar yesterday. The local currency recorded 10.67 percent fall to the American dollar since the beginning of the year which is far less than 100 days. Last year, the Ghana cedi fell by 22.9 and 19.1 percent respectively against the US Dollar and the Euro and appreciated by 7.1 percent to the Pound Sterling.
The local currency lost its grounds against the Euro and the CFA Francs both Monday and yesterday but managed to make some impressive gains against the British Pounds.
The Euro and CFA appreciated by GH¢1.25 percent and 3GHp against the local currency on Monday thus improving upon its year-to-date by 0.56 and 0.57 percent respectively. The two foreign currencies again made GH¢1.20 and 3GHp gains against the Ghana Cedi yesterday.
However, the Pound fell by GH¢1.65 to the Ghana Cedi but it recorded 5.23 percent appreciation to the local currency since the year began.
The US currency, which appears to have bounced back from its weakness experienced last year, traded at GH¢1.33 and GH¢1.38 against the Ghana Cedi on the interbank market. President Barrack Obama last month announced a revamped rescue package, using taxpayers' money to finance buying up to $1 trillion in toxic bank assets.
The plan also included a program that makes more money available to consumer loans and as well conduct “stress test” of the nation's largest banks to decide how much federal aid each will need.
The free fall of the cedi which is pinching both importers and exporters could trigger inflation hikes in spite of the increase in the prime rate- the rate at which the Bank of Ghana lends money to commercial banks.
Already, some visibly disturbed traders have shared their frustrations, explaining that while prices of items may go up, sales are likely to drop in the ensuing months if the local currency continues to lose its grip over the foreign currencies especially the Dollar and the Euro because most items are bought with those currencies.
Prices of goods or items would tend to go up anytime the Ghana Cedi falls against the US Dollar, especially since the local currency is pegged to the American currency. Raw materials imported from overseas by manufacturing firms would also impact on prices on the local market.
Consumers therefore stand at a great disadvantage as they would need more money to buy goods.
According to the January figures for inflation, prices of certain imported items such as margarine, rice and cooking oil that have some weight on the index used to measure the Consumer Price Index shot up significantly.
At the moment, it is unclear whether the new Prime Rate will serve as an attractive package to lure foreign investors thereby providing the necessary supply of foreign exchange to meet the rapidly increasing demand.
Some analysts have already criticized the Bank of Ghana for increasing the prime rate, indicating that the cost of doing business would be expensive for the private sector.
Nevertheless, government's fiscal package for this year, including cutting down on some public expenditure and improving agric financing, a situation that could boost food production, hence bringing some price stability in the system, has been released. It is expected to complement the monetary policy of the Central Bank.
The Ghana Statistical Service is however expected to release a new inflation rate for February by the end of the week and analysts expect the rate to go further up.
By Charles Nixon Yeboah