After a torrid performance by the local currency against the US dollar for a greater part of the first quarter of this year, the cedi has regained more than one percent of its lost value over the past week.
The cedi, as at March 10th, was trading at GH¢4.603 with the greenback on the interbank market, indicating a year-to-date depreciation of 8.6 percent — the peak of the cedi’s troubled performance in the first quarter.
That same day, government issued a three-year one billion cedis bond to only domestic investors at a yield of 21.5 percent.
The sale of the bond proved a catalyst for the cedi’s turnaround; with the local currency regaining 1.3 percent of its value from March 10-17 to lower the year-to-date depreciation to about 7.4 percent.
Hitherto, the cedi’s depressing run was attributed to a combination of factors including the U.S. Federal Reserve decision to hike its benchmark interest rate to 0.75 percent in December last year, which led to some investors in Ghana cashing out and going to invest in the US market seen as less risky.
South Africa-based RMB Global Markets Research also attributed the cedi’s decline to an announcement made by government of a previous undisclosed spending incurred by the John Mahama-led administration.
The presentation of the maiden budget ofthe Nana Addo Dankwa Akufo-Addo-led administration on March 2 was expected to boost optimism in the cedi but that was not to be as the local currency’s pernicious slide continued till the issuance of the 3-year bond on March 10.
The cedi’s performance after the issuance of the domestic bond lends credence to arguments that the hike in the price of the dollar was driven by investors who had sought to use the greenback as a store of value.
With the 91-Day T-Bill rate pegged a little over 16 percent and the 182-Day just over 17 percent, the yield on the 3-year bond enticed investors who turned to the bond as against having to purchase the greenback as a store of value.
The Finance Minister, Ken Ofori-Atta, in the 2017 budget recently approved by Parliament,said that there would be no Eurobond issuance as has been the case over the past five years.
Government, alternatively, would finance its deficit largely from the domestic market with the signature Cocobod syndicated loan expected much later in the year.
The decision to finance the deficit domestically could serve as government’s means of absorbing liquidity that could be used to pursue dollar assets which would force upwards the price of the dollar.
But as a long-term measure, government’s decision to pursue an industrialisation agenda anchored on the ‘one district, one factory’ programme is expected to increase exports which would bring in the needed forex that would cure the perennial shortage of the US dollar.