Why the cedi Is getting stronger: Bank of Ghana explains (layman version)

The Governor of the Bank of Ghana, Dr. Johnson Asiama, says the recent rise in the value of the Ghanaian cedi is due to smart decisions made by the government and the Central Bank. These include efforts to reduce government spending, building up foreign currency reserves, and strictly managing how foreign exchange is handled in the country.

Speaking at a press conference in Accra on Friday, May 23, Dr. Asiama explained that these steps have helped the cedi bounce back against major international currencies like the US dollar and the euro.

“We are observing it continuously, though. The appreciation is largely driven by the market,” he said. “It is about maintaining exchange rate stability.”

Dr. Asiama also announced that the Bank of Ghana’s Monetary Policy Committee has decided to keep the main interest rate, known as the policy rate, at 28 percent. This is part of efforts to keep inflation (the general increase in prices) under control. He said prices of food and other goods have been going down steadily in the first four months of the year.

At the same time, another organization, the Ghana International Trade and Finance Conference (GITFiC), pointed out that the cedi is also under pressure because foreign companies in Ghana are sending more of their profits back to their home countries. This outflow of money, they say, is affecting the currency’s strength.

“This phenomenon is not new; however, it is characterised by market speculation, which is largely accounting for the current negative trend,” GITFiC said in a statement signed by its CEO, Selasi Koffi Ackom.

GITFiC noted that despite government efforts like the gold-for-oil programme and restrictions on dollar use for certain imports, the cedi lost a bit of value in the first part of 2024. They urged the Central Bank to be ready to release more foreign currency into the market when needed and to focus any new funds, like the expected $200 million, on areas that need the most help.

They also advised the Bank to continue cracking down on dishonest forex dealers and to keep enforcing the rules strictly. These combined strategies aim to keep the cedi stable in the long run.