Cedi Fall: It’s difficult to measure speculations as a cause – Gatsi tells Bank of Ghana, MoF

admin May 28, 2024

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The Dean of the Business School of the University of Cape Coast, Professor John Gatsi has told the Bank of Ghana (BoG) and the Ministry of Finance (MoF) that speculations on the market cannot be the cause of the rapid depreciation of the Cedi against the Dollar.

For him, if the economy is managed well with positive outcomes, traders will have no business speculating.

His comments come at a time that the Governor of the Bank of Ghana (BoG) Dr Ernest Addison has warned against speculative comments about the local currency.

He says the speculative comments have largely contributed to the woes of the Cedi.

Addressing the 118th Monetary Policy Committee (MPC) press conference in Accra on Monday, May 27, he said “Stop engaging in speculative purchasing and the comments.”

Dr Addison further explained the other factors causing the woes of the Cedi.

He said “The pressure reflected an increased in demand for higher imports, IPP arrears payment or the energy sector payment and uncertainty around debt restructuring with external constraints ”

He however assured that there would be corrections.

“There will be corrections,” he said.

Recently, the Minister of Finance Dr Mohammed Amin Adam also observed that speculations on the Ghanaian market are affecting the Cedi.

He urged that the speculations should be reduced. Speaking during his monthly press briefing in Accra on Friday, May 24, he said “There is so much speculation out there on the Cedi, so we need people to know that these speculations do not help us as a country or our Cedi.”

Dr Amin Adam further assured that the Cedi stability is expected to gain more in the medium term after the completion of the domestic debt exchange programme.

He also stated that the local currency is expected to gain as the managers of the economy make more progress on fiscal consolidation and improve on the reserves over the medium-term.

Cedi: We remain fully committed to stabilising the exchange rate – Bank of Ghana

“But for recent pressures, we are seeing on exchange rate movements, the exchange rate has been largely stabilised with the depreciation of the cedi against the US Dollar halving from 54.2% at the end of Nov 2022 to 27.8% at the end of Dec 2023.

“The Cedi’s stability has continued into 2024, with a cumulative depreciation of 14.2% as of 20th May 2024, compared to 20.7% recorded in the same period in 2023. We expect the cedi’s stability to improve into the medium-term as we complete debt restructuring, make more progress on fiscal consolidation, and improve our reserves over the medium-term.”

“The recent pressures we are observing on the cedi is largely on the back of the strengthening of the US Dollar against major trading currencies, seasonal forex demand including elevated demand from corporate institutions, payment to contractors and to IPPs, high Cedi liquidity and speculation.”

Reacting to these comments of the Governor and the Minister of Finance while speaking on the Ghana Tonight show on TV3 Monday, May 27, Prof Gatsi said “That is difficult to measure, it looks to me that we are over-flogging speculations as though speculations is such a negative thing to happen to an economy.

“Speculators are traders in the first place, they engage in legitimate investments, and they only take advantage of the changes in the market conditions and perhaps lead the flow of information to make a decision.

“You recall that recently when the Finance Minister held a press conference, he indicated that when the IMF money comes in we will be okay, but the traders are aware that you have received a number of money from the IMF money already but it couldn’t change anything and therefore they will prepare themselves using this information available to decide whether they want to be active on the market or not, and that will determine whether depreciation will be enhanced or not. I think we are over-flogging the issue of speculation and we are using speculations as though they are nation raiders but I do not think so.

“When the economy is managed in such a way that it does not deliver confidence to these traders then speculation is heightened. If you manage the economy well, the outcome is so positive nobody will be doing speculations, and individuals who do not need foreign currencies for the whole year will not be buying foreign currencies and be storing, they hiking demand pressures.”