Cedi will remain unstable in first quarter of 2017 - Analysts

The cedi is expected to remain unstable for the most part of the first quarter of 2017 as demand pressure increases.

From November 2016 to now, the cedi has depreciated by over 10percent and has already done a year-to-date depreciation of 1.8percent against the US dollar, largely due to low commodity prices and low foreign exchange earnings, whereas the whole of the first quarter of 2016 saw a depreciation of 1percent.

However many analysts believe the instability will be short-lived.

In an effort to stabilise the cedi, the Bank of Ghana recently auctioned US$69million into the market.

However, the Head of Research & Strategy at Ideal Capital Partners Peter Nii Odoi Charway, in an interview with BFT described the BoG’s measures as unsustainable. He explained that the economy needs to earn more US Dollars through more local production and value added exports.

“We need to explore alternative opportunities for local production and export to earn more US dollars,” he added.

Jeffery Baiden, Chief Operating Officer at Nimed Capital, an investment bank, noted that the major factors that have accounted for the performance of the cedi, since the beginning of year, include the rise of the US Fed funds rate to 0.75percent, coupled with a gradual treasury yield decline.

“These factors have collectively triggered portfolio flows into less risky US debt instruments from our domestic market,” he added.

He added that the currency will see some short-term pressure as companies and businesses restock their inventory.

But Kisseih Antonio, Managing Director of Ecobank Capital, said the BoG can do little to stabilise the cedi if the government is not prudent in helping deal with the current account imbalances.

“The BoG cannot wave a magic wand to stabilise the currency when the problem we have is a structural one, not a monetary one. We all seem to point fingers at the BoG when the cedi is not doing well but the government, and not the BoG, is in charge of fiscal policy and matters. The BOG can only help in the short-term by intervening in the FX market to mitigate any depreciation.”