Cedi worse off today than last year

The Ghana cedi is likely to settle between 23.5% - 25% range of depreciation rate by the close of year 2009, which represent a significant loss of the cedi to its peers than last year, projections from Gold Coast Securities Research indicate.

Last year the cedi lost by 14 per cent to the four major trading currencies, the dollar, the pound, euro and the CFA as measured by the GCS-CEDI INDEX. This was on the backdrop of 25% depreciation to the US Dollar, 8% appreciation to the British pound sterling, 21 per cent depreciation to the euro and 17% depreciation to the CFA.

This year, after hitting an all time high of 27.3% in August when the GCS-CEDI INDEX which measures the general performance of the cedi against its major trading currencies hit a record high of 150.80 points, the local currency has been able to reduce this abysmal performance to a level of 146.94 points as at yesterday, represent a year to date depreciation of 24.03%.

Speaking to Collins Appiah, head of research at Gold Coast Securities, he asserted that The Cedi is not likely to experience any major change from its current trend towards the end of the year though day by day fluctuations are unavoidable.

He explained that, this year’s performance of the cedi has resulted mainly from the performance of the British pound sterling which as at yesterday stood at 33% loss. Though the dollar has been fairly stabilized for the past four month, a year to date depreciation of 18.3% is still on the high side.
The report noted that the Pound’s performance locally continued to mimic its performance internationally as a pre-budget statement and a report from Moody’s Investors Service described the U.K as weaker than top-rated peers including Germany and France.

The pre-budget statement also signaled a widened budget deficit causing investor’s to sell the currency. Likewise, the Pound declined locally by 0.39 per cent adding yesterday’s drop of 1.63 per cent. Its year-to-date appreciation is currently pegged at 32.84 per cent.

The euro also followed suit, shedding a total of 4.56 pesewas since the start of trading this week to reduce its annual yield from 28.79 per cent at the close of Last Thursday to 26.08 per cent.The CFA remained flat trading at year-to-date change of 20.86 per cent.

The local currency was trading between GH¢1.42p and GH¢1.45p to the dollar. It was buying at GH¢2.33p and selling for GH¢2.37p to the pound and was going for GH¢2.11p and GH¢2.14p against the Euro. One Ghana Cedi was quoted between 305 and 311 CFA.

Meanwhile, Razia Khan, Regional Head of Research, Africa, Standard Chartered Bank projects that the Ghana cedi – which has stabilised against most trading partner currencies and appreciated against the USD in recent months – provides further reason to be optimistic on the outlook for inflation.

“We believe that a significant proportion of the non-food component of the basket (55%) is influenced by import prices, hence the importance of the Ghana cedi exchange rate. With expectations of further appreciation of the local currency by the year-end, related to capital inflows as foreign banks meet new, higher minimum capital requirements, as well as still-favourable yields, further moderate declines in inflation are likely over time.

“Supporting our belief that more cedi gains are probable, early evidence appears to indicate that the speculative holding of foreign exchange that accompanied Ghana’s balance of payments crisis in 2008 appears to have reversed.

“Between January and October 2009, the volume of activity by banks and foreign exchange bureaux slowed, with total transactions down to only USD 7.1bn, a decline of 23.3% from the year prior. Sales of foreign exchange were particularly hard-hit, declining 27.1% year-on-year over this period.

“Similar evidence can be deduced from data on the foreign currency deposits held by Ghanaians. In the year to September 2008, the period that straddled Ghana’s balance of payments crisis (when, according to some estimates, the current account deficit peaked near 20%, driven by price surges in imported oil and food), foreign currency accounts (FCAs) at commercial banks grew at an annual rate of 75.2%. More recently, growth in FCA balances has been a more moderate 37.2%, with evidence of a further slowdown as the currency appreciation continues.”

source:B&FT