Posted on: www.dailyguideghana.com
By
William Yaw Owusu
Wednesday August 22, 2012.
Renaissance Capital has attributed the continuous weakening
of the cedi against major international currencies partly to early government
spending.
“While
we expected an increase in financial outflows as the December elections
approached, we had not anticipated them to begin so early in the year.”
In
the firm’s August Macro-Economic Update, analyst Yvonne Mhango said the
subsequent drop in foreign exchange reserves explains the 20 per cent
depreciation of the Ghanaian cedi in July 2012 to GHS1.96 against $1.
The
report said the weak cedi partly
reflects financial outflows of the country, adding “we are of the view
that financial outflows increased significantly during this period,
particularly short-term money.”
“We
expect this to have contributed to the widening of the current account deficit
during this period in addition to the increase in services and income payments,
which comes with the new oil industry.”
It
said in their view, the sharp decline in Ghana’s foreign reserves is partly due
to the widening of the trade deficit in May 2012 by 57 per cent to $937million,
owing to a high international oil price that inflated the import bill and
lower-than-expected oil export volumes that undermined export earnings.
Ghana’s
gross international reserves declined by $1.1bn to $4.3bn or 2.5 months of
import cover in May from $5.4bn or 4 months of import cover at YE11.
“Typically,
economies with import cover of less than three months are considered to be
vulnerable to external shocks such as a sharp increase in the oil price,” it
said.
In
order to stem what the Bank of Ghana (BoG) viewed as “speculative activity” in
the interbank currency market that was exacerbating cedi failing, the BoG
implemented measures that would ultimately stem cedi weakness.
Some
of the measures included hiking the policy rate by 250 basic points (year to
date) and reducing the limits on net open forex positions of banks,
reintroducing BoG bills to provide additional avenues of cedi investment.
Others
were revision of application of the statutory reserve requirement so that banks
maintain the mandatory 9% reserve requirement on domestic and foreign
liabilities in cedis only as well as requiring all banks to provide 100% cedi
cover for their offshore account balances to be maintained at the BoG.
The
think tank said “we have noted the retracement of the cedi to 1.94/$1 from
mid-August, suggesting that a combination of the afore-mentioned policies may
be taking effect.”
They
however said “as it is still a few months to elections, we project some further
weakness to GHS2.0/$1 at YE12.”
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