Cedi recovery measures are working -- Wampah asserts

Bank of Ghana Governor Henry Kofi Wampah has told the Business & Financial Times he believes the central bank’s strong intervention to shore-up the cedi is beginning to bear fruit, with the currency’s rate of fall slowing from January’s alarming peak.

Speaking in an interview on March 11, five weeks after the bank set out new regulations to govern foreign exchange transactions within the country, Dr. Wampah said though the measures need more time to yield results, the bank’s initial assessment of their impact shows they have helped to moderate the currency’s slide significantly.

“The depreciation has reduced considerably to about 1 percent according to our analysis -- that is, if you are looking at three weeks after they were announced to now; because, as you know, the measures need time to be effective,” he said.

The Governor’s assessment is consistent with data gathered by the B&FT, which show that after a pernicious 7.8 percent decline against the dollar in January, the cedi pared its losses to 5 percent in February and further down to 1.7 percent from beginning of March to date.

Dr. Wampah said pressure on the currency, which typically emanates from high dollar demand, has not eased; but added that the slowing depreciation is because the central bank’s measures – which also included jacking-up the policy rate from 16 percent to 18 percent on February 6 – are working.

He stressed the importance of sustaining the intervention and keeping fiscal and monetary policy tight -- a view that suggests the Monetary Policy Committee, of which the Governor is chairman, will probably affirm its big interest-rate hike at its upcoming meeting on March 31.

This will be expected especially in light of growing inflationary pressure, with consumer-price index inflation jumping to a new four-year record of 14 percent in February.

While debate continues about the suitability of the foreign exchange controls launched by the central bank, the improving strength of the cedi will lend some credibility to the actions, despite the serious repercussions they have had on business people and government.

In response to some of the concerns surrounding the controls, the BoG amended its initial directives, but that only assuaged part of the anxiety within the business community, where companies and entrepreneurs are still trying to adjust to the new regime.

By raising the policy rate and yields on government debt, the BoG is also set to cause a revision of the government’s budget for interest payments, which is already large and among the main items that must be tackled to bring down the deficit.

Last month’s visiting International Monetary Fund (IMF) mission, led by Christina Daseking, urged the central bank to “review the measures after an appropriate evaluation period to assess their effectiveness and mitigate any unintended consequences”.

The mission called for urgent additional measures to protect this year’s fiscal deficit target of 8.5 percent of GDP amid what it described as “the weakening growth momentum and inflationary pressures [that] are expected to continue into 2014”.

According to the Fund, the economy’s growth in 2013 will probably come in at 5.5 percent, against the government’s projection of 7.4 percent. It also expects a worse figure in 2014, forecasting a 4.8 percent expansion compared to the government’s 8 percent target.

By Leslie Dwight Mensah | B&FT Online | Ghana