The Ghana cedi held steady against the US dollar last week as soft US inflation data caused the American greenback to weaken against a basket of emerging market currencies, including the local unit.

As a result, the cedi gained 0.13% week-on-week to end the week’s trades at a mid-rate of GH¢15.93 to a dollar.

However, robust economic data from the Eurozone and the UK caused the pound and the euro to strengthen, resulting in the cedi shedding 0.86% week-on-week and 0.58% week-on-week against the pound and the euro. 

Meanwhile, the cedi would gain some respite from the Bank of Ghana’s 7-day Forward Auction Initiative this week.

The Bank of Ghana (BoG) announced a seven-day forward auction last week, where banks and authorised foreign exchange dealers could submit bids to purchase foreign currencies, with a settlement date set to seven days after the auction.

Analysts believe this development seeking to replace the spot market intervention, will also augment the Bulk Oil Distributing Companies auction and help tame demand pressures on the market.

During the maiden auction last week, the BoG sold about $53 million which helped the local unit to gain 0.29% day-on-day vs the American greenback. 

Against the backdrop of this initiative, analysts see room for the cedi to remain fairly stable in the coming weeks.

Meanwhile, one dollar is going for GH¢15.90 on the retail market.

So far, the dollar has lost about 23% to the dollar on the retail market since January 1, 2024.

The Ghana Cedi is expected to recover some losses against the dollar in the coming months, Fitch Solutions has disclosed.

According to the London-based firm, this is due to enhanced investor confidence, increased dollar inflows, and easing external conditions.

In an article titled “Sub-Saharan Africa Currency Round-Up: Greater Stability Ahead in Second Half of 2024,” it is predicted that external conditions will provide more support to Sub-Saharan African currencies in the coming quarters.

The London-based ratings agency expects the Ghanaian cedi to perform better in the second half of 2024. So far this year, the cedi has lost approximately 20% of its value against the US dollar, making it one of the worst-performing currencies globally.

Weak capital inflows due to subdued market sentiment and ongoing debt restructuring negotiations have contributed to this decline. However, the start of an economic recovery, with real GDP growth accelerating from 3.8% in Q4 2023 to 4.7% year-on-year in Q1 2024, has increased demand for foreign exchange.

Ghana’s international reserves remain low, covering just 2.5 months of imports as of March. Along with IMF agreements allowing the exchange rate to adjust to market conditions.

Fitch Solutions projects that the cedi will regain value by 9.0% by year-end, from the July 9, 2024, spot.

On July 8, Ghana reached an agreement with international bondholders to restructure US$13 billion worth of external debt. This process is expected to be concluded by the end of September 2024.

Fitch Solutions stated that: “this restructuring will improve investor sentiment towards Ghana, enhance capital inflows, and apply appreciatory pressure on the cedi”.

A new report by the World Bank has revealed that Ghana was the second top recipient of remittances in sub Saharan Africa in 2023. In 2022, Ghana recorded $4.7 billion in remittances occupying the second position in that year.

This was captured in the 2023 Migration and Development report released by bank on June 26, 2024.

According to the report, the largest recipients of remittances in the period under review in US dollar terms were Nigeria, followed by Ghana, Kenya, and Zimbabwe.

Nigeria received $19.5 billion, Ghana $4.6 billion, Kenya $4.2 billion and Zimbabwe $2.1 billion.

The report pointed out that remittances have become the most important foreign exchange earner in most countries in sub Saharan Africa.

“For example, for Kenya remittances are larger than the country’s key exports, including tourism, tea, coffee, and horticulture. Countries more dependent on receipts as a proportion of GDP include the Gambia, Lesotho, Comoros, Liberia, and Cabo Verde with remittances contributing more than a fifth of GDP in the first three countries”, it said.

The World Bank explained thatremittance flows to Sub-Saharan Africa were nearly 1.5 times the size of Foreign Direct Investment (FDI) flows in 2023, and relatively more stable.

Over all, the report said that the regional growth in remittances in 2023 was largely driven by strong remittance growth in Uganda (15 percent to $1.4 billion), Rwanda (9.3 percent to $0.5 billion), Kenya (2.6 percent to $4.2 billion), and Tanzania (4 percent to $0.7 billion). Remittances to Nigeria, accounting for around 35 percent of total remittance inflows to the region, decreased by 2.9 percent to $19.5 billion.

Remittance costs

The report revealed that sub-Saharan Africa remained the region with the highest remittance costs. Senders had to pay an average of 7.9 percent to send $200 to African countries during 2023Q4, compared with 7.4 percent in 2022Q4.

Costs vary substantially across the region, ranging from 2.1–4.0 percent in the lowest-cost corridors to 18–36 percent in the highest.

Intraregional remittances costs are still very high. For example, sending $200 in remittances from Tanzania to neighboring Kenya, Uganda, and Rwanda cost a migrant more than 33 percent in 2023Q4.

Source: Joy Business