Pace of cedi depreciation to slow down this week following BoG’s timely additional measure

The pace of the depreciation of the cedi is expected to slow down, despite losing 1.22% last week to the US dollar, increasing its year-to-date loss to over 14% in the retail market.

This is due to the additional policy measure by the Bank of Ghana to unify currency denominations and increase the Cash Reserve Ratio of banks to 15%, beginning November 30, 2023.

The Central Bank last week moved to unify currency denominations for cash reserve ratio to slightly alleviate foreign exchange liquidity constraints in the coming weeks.

The Governor of the Bank of Ghana, Dr. Ernest Addison announced at the Monetary Policy Committee press conference that banks would hold reserves in foreign deposits in the local currency.

Analysts envisage this will augment foreign exchange liquidity in the near term, as banks sell forex to unlock cedi liquidity.

They expect the increased Cash Reserve Ratio to mob up some cedi liquidity and ease cedi-funded FX demand in the coming weeks.

The policy measure is expected to release about $750 million, which should improve liquidity conditions in the forex market around the Christmas season.

Last week, the forex liquidity remained subdued amid limited intervention from the Bank of Ghana, causing the cedi to decline across the major trading currencies.

The currency experienced weekly declines of 1.48% and 0.94% against the pound and euro, respectively.