The Bank of Ghana injected $840M in one month to stabilize the cedi, raising concerns about sustainability amid rising dollar demand and potential future depreciation.
The Bank of Ghana (BoG) has injected over $840 million into the market over the past month in an aggressive effort to stabilize the cedi, which had been facing significant depreciation against foreign currencies. This substantial intervention has helped the cedi rebound from its earlier slump, where it was trading around GH₵ 16.55 and GH₵ 16.65 per dollar in November, to a more favorable range of GH₵ 14.75 and GH₵ 14.81.
The central bank’s strategy has involved daily dollar sales through its two- and seven-day forward auctions, primarily aimed at local businesses. This $840 million injection within just 30 days represents a 600% increase compared to the usual $120 million provided each quarter, highlighting the BoG’s determined approach to reversing the cedi’s losses.
The BoG’s ability to intervene has been supported by a significant improvement in its foreign reserves, which have grown from 2.7 months of import cover at the end of the first quarter to about 3.5 months by October. Additionally, the International Monetary Fund (IMF) recently approved a $360 million disbursement to Ghana, further bolstering the country’s financial position.
However, while the interbank market has seen notable gains for the cedi, its appreciation has been slower in the forex bureaux, where the dollar continues to trade at around GH₵ 16.20, down from GH₵ 17 a month ago. This discrepancy has raised concerns among analysts, with some suggesting that the cedi’s recent strength may not be driven by natural market forces. There are fears that the currency could weaken again if the BoG scales back its market interventions.
Looking ahead, January typically brings increased demand for the dollar as multinational companies seek to repatriate profits, which often leads to a sharp depreciation of the cedi. Some analysts are worried whether the central bank will have sufficient reserves to meet the expected rise in demand or if the cedi will once again face its usual first-quarter slump.
On the other hand, there is cautious optimism that the BoG could use its gold reserves to offer an alternative to multinationals seeking dollars. This strategy could help ease demand and keep the cedi stable, even if the current gains cannot be sustained in the long term.
