Contrary to government�s assertion that it has achieved a solid macroeconomic stability, the Ghana Cedi witnessed an annual depreciation of 10 percent in 2011.
Currencies such as Egypt Pounds, Kenya Schillings and Nigeria Naira depreciated by 3.41 percent, 5.32 percent and 6.2 percent respectively. The Cedi started the year at GH�1.48 but depreciated by 9.58 percent.
It closed the year 2011 at GH�1.64 against the US dollar despite the fact that some analysts and top bankers predicted that the local currency would end the year at GH�1.55.
Last year, the Cedi came under immense pressure intermittently and traders, who import items into the country, urged the authorities to address the problems. An injection of $2 billion from the cocoa syndication somehow boosted the strength of the local currency for a while but it later depreciated.
Derrick Mensah, currency analyst at SIC FSL told CITY & BUSINESS GUIDE that the Cedi would continue to depreciate on the inter-bank market in 2012 on the back of a combination of domestic and foreign factors.
�On the international front, debt crisis in the Eurozone and a rather slow paced recovery in the U.S and the U.K is expected to reduce the volumes of foreign participation in local securities.
We anticipate upcoming bond auctions to be more dominantly subscribed by local investors, reducing the inflow foreign exchange into the economy.�
Historically, the cedi has performed poorly in election and post election years, he noted, adding that �this is because the apprehension on the markets cause investors to hold their investments in foreign currencies, mainly the dollar for fear of political risk. �
This, he explained, puts additional pressure on the local currency since demand leans more towards the dollar.
Ghana�s currency is pegged to the American Dollar and therefore the decline in the value of the cedi tends to increase the cost of imported items, which is passed onto consumers. This means the price of items goes up automatically.
However, a stable exchange rate allows foreign investors to put their capital into Ghanaian equities. A strong local currency has the tendency to boost the investment climate.
Meanwhile, the cedi weakened to the lowest level in almost 18 years against the dollar as traders bought the green currency to import goods while foreign investors sold their local investments.
Bloomberg report indicates that the local currency depreciated 0.8 percent to 1.674 per dollar as of 2:10 p.m. yesterday, the lowest since at least May 1994.
�Demand for dollars today came mostly from offshore investors and buyers from the commerce industry,� Chris Nettey, a currency trader at the local unit of Standard Bank Group Limited said.
�The offshore investors sold their investments in bonds and other instruments on the secondary market, citing the possibility of a weaker cedi in an election year.�
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