The local currency last week recorded its biggest gain against the US dollar this year, when it closed trading on Friday gaining 7.8 percent in value over the greenback.
The cedi’s strong performance is in marked contrast to what the market has become accustomed to over the first half of this year, when the cedi depreciated by more than 26 percent against the US dollar.
The blighted currency on July 2 made a 3.5 percent gain over the US dollar — but that record was even better the following day when the cedi recorded a stunning 4.2 percent gain against its major trading partner to bring down the level of depreciation against the dollar to 20.4 percent from a peak of 26.2 percent on June 30.
The local currency, after closing trade on June 30 at GH¢4.3364 bounced back at GH¢4.1914 the next trading day, and finished the week at GH¢4.0217.
The cedi’s new-found strength comes barely a fortnight after the central bank announced that it had increased its dollar sales in the interbank market to US$20million a day up from US$14million a week in a bid to halt the dangerous slide of the local currency.
“We have raised our intervention significantly over the past two weeks. This is going to continue and we will do more as and when necessary to ease pressure on the cedi,” the central bank’s governor Henry Kofi Wampah told Reuters last week.
According to him, the robust interbank intervention will continue and he expects dollar inflows from donors, a Eurobond and cocoa loan, to boost the central bank’s foreign exchange reserves.
Apart from the Bank of Ghana ramping up its daily dollar sales, analysts also attribute the cedi’s massive gains to improving sentiments in the economy after the International Monetary Fund issued a particularly optimistic statement about the progress of ongoing fiscal consolidation.
The Washington-based lender said its US$918million fiscal stability programme with Ghana is on track, and that government has met almost all performance criteria.
The Fund’s review team last week said: “The programme is on track, with all performance criteria met except for the ceiling on central bank financing to the government that was technically missed by a small margin”.
The mission team, led by Joël Toujas-Bernaté, said it welcomes the commitment reiterated by government to the ambitious fiscal consolidation and structural reforms programme — particularly in addressing payroll irregularities, enhancing public finance management and transparency, and liberalising the oil distribution sector.
“The mission welcomes the resolve of the central bank to take additional measures as needed to bring inflation down toward its medium-term target, which will also contribute to stabilising the cedi,” Mr. Toujas-Bernaté said.
Budget support from development partners — which has started to be disbursed, financing of the next cocoa crop, the new Eurobond and the gradual switch to gas in the production of electricity should also reduce pressures on the foreign exchange market and allow the central bank to rebuild its external reserves to a higher level than programmed by year-end.