By Moses Mozart Dzawu – Ghana’s cedi, the worst-performing African currency, is poised to drop another 9.2 percent this year as rising imports and looming elections sap confidence, Standard Bank Group Ltd., the continent’s biggest lender.
The currency of the world’s second-biggest cocoa producer will probably sink to 2 per dollar after closing at a 19-year low of 1.8170 yesterday, Stephen Bailey-Smith, an emerging- market strategist at the group’s investment arm, Standard Bank Plc in London, said in e-mailed comments to Bloomberg.
“There is a lack of confidence in the cedi due to overheating import demand and some nerves around being long a local currency into an election,” Bailey-Smith said.
While Ghana’s economy expanded 14.4 percent in 2011 spurred by oil production, demand for dollars by local producers to buy equipment and raw materials has sent the currency tumbling. Presidential and parliamentary elections scheduled for December are limiting investor inflows on concern of potential violence and increased government spending, according to Standard Bank.
The Bank of Ghana has raised its benchmark interest rate twice in the past three months to 14.5 percent to stem the currency’s depreciation. Governor Kwesi Amissah-Arthur said April 13 the declining cedi is a “major source of concern” that requires “decisive policy measures to stem the trend.”
While higher interest rates will help to “slow import demand somewhat,” it won’t be enough to stop the depreciation, according to Bailey-Smith.
“The best method to restore cedi confidence is via higher interest rates, but as the examples of Kenya, Uganda, Tanzania and Nigeria have taught us, Ghana may still have some way to go to adequately switch the negative market psychology,” he said.
The cedi declined for a second day yesterday, dropping 0.7 percent to percent to 1.8170 per dollar, according to data compiled by Bloomberg.
President John Atta Mills is vying for a second term in office against opposition leader Nana Akufo-Addo. His ruling National Democratic Congress will also seek to hold on to its parliamentary majority.
Foreign reserves declined to $4.6 billion in March, from $5.4 billion in December, according to the Bank of Ghana.
The Finance Ministry expects 9.4 percent growth in the economy this year after oil production for export began at the Jubilee oil field in 2010.
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