Amid many speculations of a possible fall of the cedi in the third quarter of 2016, the domestic currency stood its grounds against the major trading currencies. The cedi recorded a marginal cumulative depreciation of 0.66% and 1.56% to the US dollar and euro respectively within the third quarter of 2016 (Q32016). However, the cedi posted some gains of 2.04% against the sterling in Q32016.
This puts the Year-to-Date (YTD) depreciation of the cedi at 4.65% to the US dollar, 7.8% to the euro and a YTD appreciation of 8.27% to the British Pound.
Table 1: Third Quarter Performance of Cedi, 2012-2016 (%)
Source: GCFM Cedi Index
This trend was largely influenced by the steady fluctuations in global commodity prices, weakening of the British pound after the Brexit and persistent decline in China’s inflation rate during Q32016.
Unlike the preceding quarter, the stability in the cedi reduced the pressure on prices of goods and services and pushed consumer price inflation to 16.9% in August, 2016. Arguably, this was one of the best quarterly performance of the cedi in recent years, and it succeeded in restoring confidence in the domestic currency ahead of the upcoming elections (See Table 1 for details).
On the domestic front, the relaxation of rules governing the repatriation of export proceeds by the Bank of Ghana, relatively stable power supply, steady treasury bills rate and the decision to hold the monetary policy rate at 26% since year-open, contributed immensely to the stability of the cedi.
Even so, this impressive ride would have been stronger, if not for the depleting gross foreign assets within the past four months (See Figure 1 for details) and the rise in current account deficit prior to the beginning of Q32016.
In comparison with other African currencies, the cedi performed better than the Nigerian naira, Rwandan franc, Namibian dollars, Tunisian dinar and the Zambian kwacha during the third quarter of 2016 as prices of major exporting commodities traded lower.
Nevertheless, the Mauritius rupee, Moroccan dirham, Botswana pula, South African rand and Tanzanian shilling posted better results than the Ghana cedi.
Going forward, we expect the revamp in world crude oil prices, inflows from the US$750 million Eurobond, US$1.8 billion cocoa syndicated loan, US$116.2 million third tranche support from the IMF and the ongoing US$50 million USD-denominated domestic bond issuance among others, to offer some respite to the cedi ahead of the December polls.
Taking inference from the performance of the cedi during the last quarter of 2012 and subsequent years (See Figure 3), we expect the cedi to depreciate marginally by some 0.65% to the US dollar, but appreciate by some 2.20% and 0.64% to the sterling and euro respectively by year-end.
Hence, we estimate the cedi to be sold at GHC4.00, GHC5.04 and GHC4.43 to the US dollar, British pound and Euro respectively by the end of year.
Credit: GN Research