The Ghanaian cedi has dropped by a whopping 64.45% against the US dollar since the start of the year.
At the time of writing this article, the USD/GHS was trading around 9.9495. This depreciation comes despite Ghana’s central bank interest rate hike to a record-high of 22% in a bid to curb inflation and strengthen the Cedi.
Investors have dumped the cedi and the nation’s bonds this year as concerns about the impact of a global slowdown in demand for commodities such as cocoa have risen. Those movements fed an inflationary surge and pushed Ghana to begin talks with the IMF in July over an assistance package of as much as $3 billion.
Ghanaian Cedi Depreciates By 64% Year-To-Date
Ghana’s debt at the end of June represented 78.3% of its GDP, up from 62.5% five years earlier. The government turned to taking out domestic loans, paying annual interest rates of around 30%, since it was unable to access international markets.
After the government threatened to default on its local debt, the central bank stepped in to supply it with funding; nevertheless, it intends to limit future assistance to remain within its legal lending ceiling.
S&P Global Ratings reduced Ghana credit rating by one notch in early August to CCC+, seven levels below investment grade, citing the government’s high financing needs and constrained access to capital markets.
Ghana’s consumer inflation reached nearly 34% in August, the highest since 2001, despite a historic rate increase by the central bank. Consumer inflation in the West African country climbed to 33.9% annually in August from 31.7% in July, according to new figures released by the statistical service.
The Bank of Ghana is also collaborating with mining companies, international oil companies, and their bankers to purchase all foreign exchange resulting from the voluntary repatriation of export proceeds from oil and gas companies and mining firms to increase the supply of foreign exchange to the economy.
The foreign exchange auctions of the central bank are expected to strengthen the value of the Cedi, however, its success is yet to be seen.