Cedi depreciates by 15 pesewas to the dollar in 11 months

The cedi has recorded a year-to-date (YTD) depreciation rate of 2.6 percentage points [15 pesewas] against the dollar – from January to November 2021.

The depreciation follows months of declining appreciation rate against the American dollar – from January to May when it posted an appreciation rate of 0.2 percent against the dollar.

In the month of July, the cedi depreciated by some 0.7 percent against the dollar, it further depreciated by 1.6 percent in August, by 1.7 percent in September and finally by 2.4 percent in October.

The depreciation of the cedi is despite the strong dollar reserves held by the Bank of Ghana (BoG) which is in excess of $11 billion as well as the weekly forex auction of dollars by the Central Bank aimed at ensuring that there is sufficient supply of dollars to businesses and hence less pressure on the cedi which usually result in the depreciation of the local currency.

Given the strong reserves of the BoG and its weekly forex auction, the depreciation of the cedi can be attributed to the strengthening of the dollar and increased demand for the American greenback on the back of increasing imports occasioned by the pickup in economic activities and gradual recovery of the economy from the Covid pandemic.

Despite depreciating against the dollar, the cedi however, posted some strong gains against the Euro.

The cedi appreciated by some 4.0 and 5.6 percentage points against the Euro in the month of September and November.

An examination of the Bank of Ghana’s November 2021 Summary of Economic and Financial Data indicates that the cedi since the start of this year has been gradually appreciating against the Euro posting a 1 percent appreciation rate in January, 2.4 percent in April, 2.7 percent in July and then 3.5 percent in October.

Unlike its performance against the Euro, the cedi with regards to its performance against the British Pound, has been depreciating since the start of 2021, recording a depreciation rate of 3.6 percent in May, 2.3 percent in July, 2.6 percent in October and 1.1 percent in November.

Cedi set to end 2021 with the lowest depreciation rate in almost 3 decades

The local currency is expected to end this year with the lowest depreciation rate since 1992.

The anticipation comes on the back of the impressive cumulative year-to-date depreciation rate of 1.7 percent against the greenback in September and now 2.6 percent in November as noted by the Central Bank.

Over the past few years, the cedi has shown stability bouncing back from its highest annual depreciation rate of 31 percent in 2014.

While the cedi depreciated by 12.9 percent in 2019, it came down to 3.9 percent in 2020, 1.7 percent in September 2021 and with one month to end 2021, the depreciation rate of 2.6 percent is the lowest depreciation since 1992.

Despite the optimism expressed by some analysts on the cedi ending 2021 with the lowest depreciation rate ever recorded in the 4th Republic, there however remain some risks which might alter the slow-paced depreciation rate of the cedi this year.

The risks include the upward trend of headline inflation coupled with the high demand for the American dollar by businesses especially ahead of the Christmas festivities, thereby putting pressure on the cedi and causing it to depreciate rapidly.

Source: norvanreports

Leave a Reply

Your email address will not be published.