The Bank of Ghana has stepped up moves to beef up the country?s external reserves to US $8 billion in anticipation of almost US$4 billion additional offshore inflows to provide a strong buffer to sustain the stability in the foreign exchange market.

That will push the country?s external reserves to four months of import cover, up from the current reserve position of US$4.5 billion that can finance 2.9 months of imports.

Bank of Ghana Governor, Dr Henry Kofi Wampah told the Graphic Business that increased dollar inflows from the almost $1.5 billion Eurobond sale, a US$1.8 billion cocoa syndication loan and aid from development partners would help sustain the gains of the Ghana cedi.

The country?s foreign reserves dropped from US$4.8 billion recorded in April, representing g 3.2 months of imports to the US$4.5 billion that can finance 2.9 months.

This apparently gives an indication of the extent of the central bank?s intervention in the foreign exchange markets.

The external reserve was US$5.2 billion for 2014 which was 3.2 months? imports cover.

The US$300 million drop was partly used to shore up the cedi that had depreciated by 26.2 per cent year-to-date against the dollar.

The Bank of Ghana?s intervention in the currency market has seen the cedi reverse the decline and has so far gained more than 22 per cent of its lost value.

Recovering losses

The cedi has so far clawed back most of its losses to record a year-to-date depreciation of 3.35 per cent as at 15th July, 2015 compared to 26.2 per cent at the end of Jun-2015).

The cedi was trading at GH?4.33 to the US dollar as at June 30, registering a year-to-date depreciation of 26.2 per cent. However, as at July 1, it was trading at GH?3.3094 to one US dollar, representing a year-to-date depreciation of 3.4 per cent.

The release of the next tranche of US$114 from the IMF and a gradual switch to gas in the production of electricity is also expected to reduce pressures on the foreign exchange market and allow the central bank to rebuild its external reserves to a higher level than programmed by the end of year.

Senior Economic analyst at Databank, Mr Courage Kingsley Martey, said with the latest improvement on the supply side of the foreign exchange market, the local currency might end the year trading around GH?3.9 to the dollar.

?We think that the Bank of Ghana?s latest policy move is only aimed at correcting the speculative drivers of the cedi?s depreciation and anchoring exchange rate expectations until the COCOBOD and Eurobond inflows arrive in the latter part of the second half of 2015?, he said.

We perceive the decision to accept bids from foreign investors at the auction of Ghana?s 2-year note as a prudent one. The inflows from these offshore bids would improve short-term foreign currency liquidity on Ghana?s Foreign Exchange market and trim the exchange rate volatility.

Mr Martey said the Bank of Ghana must strengthen its monetary policy framework by restraining its financing to the government.

Keeping policy rate unchanged

The Monetary Policy Committee (MPC) kept its main policy rate unchanged at 22.0 per cent as expected, citing improvement in the country?s inflation outlook as the local cedi currency rallies.

The cocoa-and oil-producing country is under a three-year aid programme worth US$918 million with the International Monetary Fund (IMF) to restore fiscal balance to an economy dogged by a deficit, a debt-to-GDP level close to 70 per cent and rising inflation.

The bank raised the policy rate in May by 100 basis points in a consistent monetary tightening stance to curb inflation, while maintaining growth as the country?s macro-economic position has deteriorated.

Governor Wampah said the committee observed that although inflation expectations were still elevated, the pressures in the outlook for the medium-term were waning.

?This is as a result of the tight monetary policy stance, continuing fiscal consolidation and the recent recovery of the cedi,? Dr Wampah said.

Ghana?s monetary policy mainly targets inflation and analysts had expected the central bank to hold the rate.

Annual consumer price inflation (CPI) rose to 17.1 per cent in June from 16.9 per cent the previous month triggered by the depreciation of the cedi and higher transportation costs, according to the Ghana Statistical Service.

Ghana enjoyed years of sustained growth at around eight percent on the back of its exports but the economy has suffered because of the fiscal crisis and a fall in commodity prices.

In order to improve liquidity in the foreign exchange market, the Bank confirmed that it would open two-year domestic debt auctions to foreign investors.

Dr Wampah also said the MPC had asked the Bank of Ghana to introduce additional measures to streamline monetary operations. This will include merging the monetary policy rate with the reverse repo rate within 30 days to improve transmission mechanism.

It added that the merger of the rate would be immediately followed by the introduction of a seven-day reverse repo instrument in the money market to offer more flexibility in the liquidity management of banks.


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