ANALYSTS CAUTION AGAINST CEDI VOLATILITY DESPITE RECENT STRENGTH

Despite recent gains made by the Ghanaian cedi, financial analysts are warning that the currency remains vulnerable to volatility due to underlying economic challenges and the uncertain political climate.

The cedi had lost close to 29% of its value against the US dollar by October 2024. This sharp depreciation was largely driven by increased demand for foreign exchange from the corporate sector, especially for oil imports, along with mounting uncertainty ahead of the upcoming general elections.

In an effort to manage the situation, the Bank of Ghana recently intervened by selling US$40 million through Bulk Distribution Companies to help meet oil import demands. While this helped stabilize the cedi temporarily, the rising cost of refined petroleum products continues to put pressure on the local currency.

Ghana’s foreign exchange reserves stood at US$7.5 billion in July 2024, offering about 3.4 months of import cover. Analysts are concerned that the central bank’s continued interventions could rapidly erode these reserves, leaving little buffer against future shocks.

The political environment is also contributing to concerns. Historically, election years in Ghana are marked by increased fiscal spending and instability in the foreign exchange market. Analysts suggest that the recent efforts to strengthen the cedi may be aimed at creating a sense of economic stability ahead of the elections, a strategy that could have longer-term consequences.

In addition, experts point to structural weaknesses in Ghana’s economy, including a heavy reliance on IMF programs and international donor support, which have failed to deliver long-term currency stability. The Institute of Economic Affairs (IEA) recently described the cedi as being under “existential threat,” calling for more sustainable fiscal and economic policies.

Recent interventions have bolstered the cedi in the short term, analysts emphasize that lasting stability will require deep economic reforms, responsible fiscal management, and reduced reliance on external funding.