BoG attributes foreign exchange pressures to high imports, energy sector payments & uncertainty around debt restructuring negotiations

Governor of the Bank of Ghana (BoG), Dr Ernest Addison has observed that the exchange rate in Ghana has recently come under some pressure, especially in the forex bureaux market.

The pressure in the foreign exchange market, he said, reflected increased demand for higher imports, energy sector payments, and uncertainty surrounding the progress of debt restructuring negotiations with external creditors.

“These conditions have fed into sentiments and contributed to additional pressures. On a year-to-date basis, the Ghana cedi depreciated by 14.6 percent against the US dollar as at 22nd May, 2024 compared to 21.8 percent depreciation for the first five months of 2023,” Dr Addison said at the 118th  Monetary Policy Committee (MPC) press conference in Accra on Monday May 27.

Dr Addison further said that the Bank of Ghana remains fully committed to providing stability in the exchange rate for the Cedi.

Governor of the central bank, Dr Ernest Addison said that the BoG has enough foreign exchange reserves to support the market and economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs.

The Bank of Ghana is taking measures to improve market conduct and instill sanity in the market for foreign exchange. To this end, the Bank has worked with the Ghana Association of Banks to streamline documentation requirements for foreign payments to minimise the incentives to resort to the informal markets.

To deal with the high demand pressures on the foreign exchange market, the Bank has taken steps in the past few weeks to directly absorb foreign exchange needs of some corporate institutions, and this has led to a reduced pipeline demand for foreign exchange from the commercial banks.

Dr Addison said The Bank is fully aware of the operations of illegal operators in the foreign exchange market and is working with the Financial Intelligence Centre to sanitise the foreign exchange market.

Foreign exchange bureaux monitoring will be stepped up to ensure compliance with their regulatory framework.

Cedi: Bank of Ghana sets up a task force to monitor all foreign exchange bureaux

In line with this, all foreign exchange bureaus advertising rates outside their premises and on social media platforms must immediately desist from the practice. The Bank has set up a task force to monitor all the foreign exchange bureaux to ensure compliance. The foreign exchange market is also affected by sentiments and pronouncements made in this election year and we urge all to manage pronouncements which weakens confidence in the local economy.

On fiscal policy, expenditures outpaced revenue growth in the first quarter, reflecting the
frontloading of IPP arrears payments.

Maintaining strict fiscal discipline for the rest of the
year will be crucial to strengthen confidence in the economy. On general macroeconomic conditions, the committee was of the view that while implementation of policies—at the macro and structural reform level — are consistent and align well with the tenets of the IMF-supported programme, there is the need to ensure that the recent depreciation of the currency does not become embedded into the pricing behaviour of businesses and on inflation expectations.

The strong reserve build-up of about US$2 billion since the beginning of the IMF programme, the strong disinflation process, significant progress on fiscal policy consolidation, positive current account balances, and the good progress on the external debt restructuring process, have all worked together in concert to deliver enough buffers to support the exchange rate.

The latest forecast shows a slightly elevated inflation profile on account of recent exchange rate pressures and adjustments in transportation fares. However, the projections show that inflation will remain within the monetary policy consultation clause of 13-17 percent at the end of the year. These forecasts are contingent on sustaining the tight monetary policy stance, including aggressive liquidity management operations.

“Given these considerations, the Committee decided to maintain the Monetary Policy Rate at 29 percent,” he said.