Ghana Cedi Rebounds

Ghana’s currency, the cedi, has become the world’s top performer against the US dollar following the International Monetary Fund’s (IMF’s) approval of a $3bn bailout for the country.

Since last November, the cedi has increased by 33%, recovering significant losses, and is expected to continue to strengthen against the dollar.

Ghana’s dollar bonds have also received a welcome boost, outperforming emerging and frontier currency peers with an almost 12% return, compared to the 3.6% average from the Bloomberg index.

The cedi strengthened for a fourth day, on bloomberg platform to 10.73 per dollar as at press time on Friday, May 19, 2023. Bank of Ghana as at close of May 18, 2023, a $1 was trading at GHC10.82 and it was trading at Stanbic as $1 to GHC11.0. Also, Ghana’s dollar bonds have delivered a strong performance, providing investors with a return of almost 12%, more than the 3.6% average for emerging and frontier peers in a Bloomberg index.

“..The cedi is likely to see gains in the coming days, to trade at levels below 10 against the dollar,” said Daniel Kavishe, an Africa economist at Rand Merchant Bank, in a note to clients on the back of positive sentiment as Ghana government receives the first tranche of bailout money.

“A similar reaction has been seen in other markets that have received an IMF programme that has coincided with an immediate disbursement of funds.”

The IMF funds is expected to help restore Ghana’s foreign-exchange reserves which have dropped by nearly 50% from a peak in August 2021 as the central bank used them to help ease the pressure on the cedi, which came under significant selling pressure after the country defaulted on its debt, Kavishe said.

The local currency lost about 8.7 percent in value to the US dollar since the beginning of the year.
Prior to the announcement of the fund’s approval as hinted by Dr Amin Adams, a minister of state at the finance ministry on Friday, May 12, 2023, the cedi recorded relative stability, trading around GH¢11.9 to a dollar since late March 2023.

The cedi gained further grounds on May 16, 2023 to sell at GH¢11.78 to one dollar. It has since March 2023 recorded stability against the world’s most important currency.

The same story can also be said about the pound and then euro. The cedi is going for GH¢14.90 and ¢12.97 to the pound and euro respectively.

Investors were cautiously optimistic that Ghana would get the IMF deal approval during the second quarter, without ruling out a May approval per government’s indications.

“Immediately on Friday May 12, 2023], we saw that reflected in the Ghana cedi performance as the local currency gained 1.0% on Friday alone. The gains have continued into this week as the market expect the approval this week, roundly today, as communicated by government officials”, Economist Courage Martey, said.

“So, in sum, yes, the recent run appreciation of the Ghanaian cedi is due to the latest positive news effect from IMF programme approval”, he added.

Although the improvements are being driven by positive sentiments, analysts have warned that economic fundamentals have not yet improved.

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