Bloomberg News

Ghana Cedi Has Room to Weaken Before Steps Needed, IMF Says

November 02, 2011

(Updates with cedi exchange rate in fourth paragraph.)

Nov. 2 (Bloomberg) -- Ghana has room to wait before taking steps to support its currency even after the cedi fell to a 17- year low against the dollar last month, the International Monetary Fund said.

The West African country would need to take measures such as borrowing dollars to buy the local currency if the cedi depreciates more than an inflation-adjusted 15 percent in a year’s time, Wayne Mitchell, the country representative of the Washington-based institution, said in an Oct. 31 interview at his office in Accra, the capital.

The cedi’s performance against the dollar is currently “fairly close to equilibrium with the balance of payments position and other economic fundamentals,” Mitchell said.

Ghana’s inflation rate held at 8.4 percent for a third month in September as falling food prices curbed price growth. The central bank has been selling dollars to slow a decline in the currency, which depreciated to 1.6411 on Oct. 17, the weakest since at least 1994, when Bloomberg began compiling the data. Ghana’s currency rose 0.4 percent to 1.5919 at 9:27 a.m. in Accra, trimming its drop this year to 6.7 percent.

The central bank sold $565 million in the first half of October alone to stem the slump, Governor Kwesi Amissah-Arthur said Oct. 19. The depreciation of the cedi will be limited to 5 percent by the end of December from a year earlier, Adams Nyinaku, head of treasury of Accra-based Bank of Ghana, said Oct. 7.

‘Market Communication’

If there are speculators in the market and the cedi falls, it can lead to “a flight to quality,” where bond investors move their investments to other markets, Mitchell said.

Selling dollars is one means for the central bank to intervene in the market, “but more importantly the central bank needs to communicate with the market,” he said. “Ghana is moving towards where people look at policy makers for guidance.”

The nation’s three-month borrowing costs fell to 9.1 percent at the last auction on Oct. 28 from 9.2 percent a week earlier. Ghana’s three-year bonds yielded 14 percent at an auction on Oct. 28, compared with 5.992 percent for South African debt with a similar maturity in the secondary market.

The economy of the world’s second-biggest cocoa producer after Ivory Coast is expected to grow 13.6 percent this year from 7.7 percent in 2010 as it began producing oil for export at its Jubilee field on Dec. 15, 2010.

--Editors: Ana Monteiro, Claudia Maedler, Karl Maier.

To contact reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.


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