Dr. Philip Abradu-Otoo, the Bank of Ghana's Director of Research, offers explanations for why the cedi's fortunes have improved after more than 10 months of sharp devaluation.
He credited many actions taken by the government and central bank, as well as the recently announced International Monetary Fund (IMF) staff level agreement on the three-year extended loan facility, for the recent reprieve.
Since the start of 2022, the value of the Ghanaian cedi has fallen by 53.8% versus major currencies, mainly the dollar.
Beginning the year at around GH6 to a dollar, it increased to GH15 in November 2022.
According to information from the Bank of Ghana, the Ghanaian cedi is now trading at a rate of around GH10 to the US dollar.
Dr. Philip Abradu-Otoo explained the achievement on the Point of View, stating that additional measures including the severe drop in imports are substantially to blame for the cedi's appreciation.
"We got a sneak preview of our November trade numbers. The data indicates that imports have significant compression. Imports often decrease if there is an exchange rate overshoot like the one we experienced.
He said that because of the cedi's problems, importers required more cedis to convert to dollars and bring in goods.
"They lacked that." They need time to gather the necessary resources to import. The numbers from November of last year show that the import bill has decreased by as much as $400 million. Therefore, this is a prospective demand for credit that would have previously arrived at the central bank's door. It has greatly decreased. Therefore, it is a progression of previous events. We won't have agents coming in to demand that much for imports, therefore the decline in demand is positive for the cedi.
The BoG's Director of Research stated that "If you look at our September news release, we did come up with certain measures" in regards to monetary policy. We enhanced the banks' cash ratio in addition to raising interest rates. In essence, we were telling the banks that they needed to retain a part of all their deposits at the central bank.
Therefore, 15% of all deposits in the banking industry had to be set aside as reserves. It was created to attempt to stop extra liquidity from entering the system and driving up prices. The effectiveness of the policy was recognized by Dr. Abradu-Otoo.
The IMF staff level announcement, he claimed, is the additional factor.
That alone gave some people hope that the future is bright and that, if we can take the appropriate actions, carry out our fiscal consolidation plan, and adhere to our debt restructuring program, it will be excellent for economic stability. Therefore, that has increased some confidence and is having an effect on our currency.