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In his recent speech to Parliament, Ghana's Minister of Finance, Ken Ofori-Atta, told lawmakers on March 28 that, given the country's strong economic fundamentals, the Cedi's depreciation is largely due to the speculative behavior of some investors in the country. portfolio and market players, as well as other market rigidities. .
According to Vice President Bawumiah, during the plenary session held on April 3 in Accra, Vice President Betty, one of the main factors of market rigidity that contributed to the sharp depreciation of the Cedi, was due to a (1) the seven (7) conditions that Ghana had to fulfill in the framework of the IMF. actions for the release of a Ghana bailout, negotiated under the NDC administration, led by Mahama. This prior action forced BoG to increase its reserves by approximately 800 million US dollars.
"The BoG can not sell any foreign exchange (Forex) on the market," said Dr. Bawumiah, vice president, who could not intervene in the market during this period. Thus, the demand for Forex has not been satisfied by the offer, as it normally happens day by day. And we know that when the demand is greater than the supply, the price is equal, all other things being equal, increases and that is exactly the situation that Ghana currently stands in. "
Facilitators
Rumors have circulated when falsities were spread in local media in Ghana, suggesting that the BoG would spend its reserves to prevent the cedi from depreciating against the US dollar. "Some people have misunderstood the IMF's requirement that BoG should build a US $ 800 million reserve, which would mean that the bank would have used US $ 800 million to cancel the cedi's depreciation," he said. the vice president.
Previously, a short-sighted Bloomberg article dated Feb. 22, believed to have spurred speculators on currencies and caused a brief dip in the Ghana Cedi (GH ¢), had attracted the attention of many concerned badysts and economists. For some, it was a facilitating article intended to trigger speculation.
But the Cedi's rally in March prompted speculators to rush into the mbad market to sell their US dollars, as the Ghanaian Cedi witnessed a remarkable recovery. The naysayers that allowed money speculators to become active went into the post-failure mode, with Bloomberg, who had led a charge of apparent speculation, flip-flopping with his expression of confidence in Ghana's economic fundamentals. This is what happened after the unprecedented success of the country in its most recent issue of Eurobonds, seven times (seven times) oversubscribed.
Ghana's economic fundamentals, among other indicators, are visible from the exponential decline in inflation. From more than 15% by the end of 2016 at a single-digit inflation rate of 9.2%, the lowest level recorded since 2013, which indicates an effective regime of targeting inflation by BoG .
But the recent short-term rise in the GH ¢ -USD exchange rate was likely to compromise that gain, as speculators settled – as a result of what was described as the publication of the article. "Enabler" from Bloomberg News. What appeared to be a harbinger of speculation, said the February 22 news site had caused problems for the Ghana cedi.
Citing a single source and using a brief fluctuation in transaction value in cedi / dollar, Bloomberg immediately reacted to the markets, "starting at once the performance of an emerging emerging economy," Daniel said. Mensah, based in Accra. Financial Analyst at BDAC, a business consulting company based in Accra. "Fortunately, its effects on the economy have been brief."
In less than fifteen days, however, the markets proved that Bloomberg was wrong. "It is clear from the data that the cedi's depreciation is not due to weak economic fundamentals, but rather to a combination of structural rigidities and the apparent speculative behavior of portfolio investors and market participants," Ofori said. -Atta.
"It should also be noted that […] however, the Cedi has performed better in the last two (2) years compared to 2012-2016, "said the Minister of Finance. The cedi lost its dollar parity, falling to 4.60 GH ¢ between 2009 and 2016. According to Daniel Mensah, "the trend of depreciation was almost institutionalized during these eight (8) years and, based on the data current macroeconomic, the culprit of the brief depreciation of the cedi may well be a facilitator of articles from one of Bloomberg's local correspondents, whose articles continually reflect speculative angles, "he said .
Nevertheless, Bloomberg's recent Cedi (GH ¢) to Dollar (USD) rates reflect black market rates. Last week, while most international exchange rate platforms had purchase rates of between 4.98 and 5.1 ¢ ¢ to the US dollar, Bloomberg's platform was still several points ahead of its counterparts, between 5.3 and 5.5 GH ¢.
The story of Kwame
Kwame, an economist at one of Ghana's largest financial institutions, who asked to remain semi-anonymous, recounted his experience at the Forex Bureau as he was trying to convert 100 US dollars on Friday, March 29th. "I went into a Forex office to change one hundred dollars. To my astonishment, the sales rate (US ¢ GH ¢ sales) dropped significantly to reach a GH ¢ 4.5 to US $ 1. That did not worry me much, but what fascinated me was the purchase rate, which ranged from 5.7 GH ¢ to 1 USD. Meanwhile, banks were selling dollars at a rate of no more than US $ 5.1 billion per US dollar.
With Ghana's heavily dollarized economy, exchange rate fluctuations tend to have a rapid impact on prices across the country, from fuel to eggs. And the immediate reaction of the market following the Cedi's brief withdrawal has created a local media appetite for articles on the source of the local currency's woes.
The first of these stories focused on Ghana's exports, where some economists have advanced below normal trade volumes. The second story indicated a four-year cycle in Nigeria, in which Nigerians transferred their naira to Ghana, converted them into dollars, and then transferred them to Nigeria through unofficial channels. The third article, a perpetual cycle of the first quarter, talked about the transfer of funds by multinationals.
The three stories, among others, have all been destroyed. Official trade data for the first quarter have not yet been announced, which creates a cleavage between the arguments for exceptionally low trade volumes and the immediate performance of the cedi. Regarding the second and third stories, sources at Ghana's largest bank have suggested that no unusual movements of multinationals' dollars have occurred.
This suggests that the short-lived cedi crisis coincided with Bloomberg's falsities and the IMF's condition for BoG; both indicative of speculation. This is reinforced by the outcome of the $ 3 billion bond issue by Ghana, which recorded excess demand of $ 21 billion, the highest for the longest bond in sub-Saharan Africa. The vote of confidence in Ghana's economy could not be more pronounced.
A remarkable rebound
On Tuesday, March 19th, the Cedi had recorded a remarkable rebound, trading between 4.98 GH ¢ and 5.09 GH $, while experts predicted 4.6 GH ¢ for the dollar in April / May. And as speculation over what appears to be an interested source dissipates, Bloomberg has expressed his idea through a series of articles showing great confidence in Ghana's economy.
Kwame, the economist, said the Forex traders he spoke to in Accra said they wanted to recover their heavy losses because of the sudden drop in interest rates, while speculators had lost following the successful broadcast of obligations by Ghana. "At this point, Forex bureau operators risk losing out to banks if they continue trading at such ridiculous rates. Their clients risk abandoning them for banks, which offer more attractive rates. "
According to Vice President Bawumiah, one of the reasons for the sudden reversal of the sharp depreciation observed is that "the market has corrected, showing that Ghana's fundamentals are really strong".
The Minister of Finance plans to create a committee to examine the structural issues that underlie the historic performance of the cedi and expects to see the participation of a wide range of stakeholders.
Meanwhile, as part of a long-term action to ensure the irreversibility of Ghana's strong macroeconomic gains, a memorandum of understanding between the government and finance on zero government funding by the Central Bank was extended until 2020 to strengthen the inflation targeting regime. the BoG.
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