IC Securities has significantly revised its year-end forecast for the US dollar to Ghanaian cedi exchange rate, adjusting its projection from GH¢13.2/US$ to GH¢15.91/US$.
This revision underscores the evolving macroeconomic challenges facing Ghana’s currency.
The research firm’s initial forecast was upended by the Bank of Ghana’s unexpected policy rate cut in January 2024, a move that precipitated strong selling pressure on the cedi. IC Securities had deferred updating its forecast, banking on expected programme-related inflows and the final tranche of the cocoa syndicated loan for the 2023/2024 season. However, these anticipated inflows failed to fully materialise, leaving the cedi vulnerable to market forces.
A further strain on the cedi came from adjustments to the Cash Reserve Requirement (CRR) for banks. These adjustments were expected to tighten local currency liquidity but had limited impact as banks rolled over their maturing Bank of Ghana securities into CRR positions instead of reducing cedi supply. Concurrently, fiscal expansion driven by the clearance of contractor arrears injected additional cedi liquidity into the forex market, exacerbating downward pressure on the currency.
Looking ahead, IC Securities anticipates approximately $2.3 billion in inflows during the remainder of 2024, a figure deemed credible based on indicative timelines. Nonetheless, these inflows are expected to contribute more to market sentiment than to tangible foreign exchange reserves, as the Bank of Ghana continues to exercise constrained intervention policies amidst efforts to rebuild reserves.
Moreover, the approach of the December elections is likely to spur increased hedging activity among domestic investors, potentially offsetting any positive impact from the inflows. This election-related hedging could maintain the pressure on the cedi, curtailing any potential appreciation driven by inflows.
Presently, the cedi is trading at around GH¢15.00 to the dollar at forex bureaus, indicating an ongoing depreciation trend. IC Securities’ revised forecast of GH¢15.91/US$ by the end of 2024 reflects a cautious outlook amid persistent macroeconomic challenges and anticipated market dynamics.
This adjustment highlights the precarious balance Ghana must maintain as it navigates fiscal expansion, liquidity management, and external economic pressures in the lead-up to a crucial election period.
Norvanreports