Rising corporate demand for US dollar looms large over cedi

Analysts at the research arms of GCB Capital and Databank maintained that the cedi was under pressure due to the surge in corporate FX demand, which was exacerbated by the broad-based global rally of the major trading currency – the U.S dollar – coupled with its relatively sparse availability on the domestic market.

“We noted a surge in corporate FX demand during the week amid the broad-based global rally of the greenback and the thin FX liquidity conditions on the domestic market, underscoring the cedi’s wobble,” said GCB Capital in a note to clients.

The cedi closed trading on the interbank market at GH¢11.58 per dollar last Friday, down from GH¢11.54 per dollar a week earlier on the retail market as it shaved off 0.35 percent on a week-by-week basis versus the greenback at end of last week.

“Demand pressures oscillated throughout the week amid limited FX supply, with local corporates comprising the bulk of FX demand,” Databank also stated.

On the retail market, however, the cedi gained 1.02 and 0.20 percent against the British pound and euro respectively.

The Bank of Ghana (BoG) has taken steps to boost the supply of foreign exchange to the economy, including auctioning US$120million in its FX forward auctions for banks in the year’s final quarter. This is in addition to other measures, including the purchase of all foreign exchange arising from the voluntary repatriation of export proceeds from mining, oil and gas companies; a measure the central bank announced on conclusion of an emergency Monetary Policy Committee meeting in August 2022.

However, analysts hold the view that the cedi is likely to remain under pressure in the near-term due to the strong dollar and continued corporate demand for foreign exchange.

“We expect the cedi to endure some volatility against the dollar on the retail market, with relatively smoother swings,” Databank added.

Some commentators, including the Institute of Economic Affairs (IEA), have advocated government intervention in staggering the repatriation of profits by foreign companies operating within the country.

Even as concerns linger over stability of the cedi pending a FX injection from the COCOBOD annual syndicated loan, further temporary respite might be achieved as the International Monetary Fund is set to commence its initial assessment of the US$3billion facility in late September 2023 continuing through October.

A positive outcome of this assessment will see a release of the second instalment of US$600 million, contingent on achieving specified performance goals outlined in the programme.

This is anticipated to ease the cyclical pressure on the cedi that occurs at the end of the third quarter and the beginning of the fourth quarter – when yuletide-induced imports rise.

Already, Finance Minister Ken Ofori-Atta has expressed confidence in a further IMF cash pay-out, saying all parameters are on course to be met.

“We are ready for the mission that comes at the end of September, so that we can try and get the staff level agreement while the mission is here; and then we go to the board in November for release of the 2nd tranche, which will be US$600million. In addition to that, there are certain things we need to do with the World Bank so we can get our DPO – which will be another US$300million. I believe that we are on course to maybe get a billion dollars to support the Bank of Ghana’s balance of payment issues,” he said at the 3rd GIPC-CEO breakfast meeting.