Ghana’s currency Cedi has continued on its downward trajectory that degenerated following the outbreak of Russia-Ukraine war.
Bloomberg reported Wednesday that the Cedi recorded its worst decline in three years, making it the worst-performing currency in the world after Sri Lanka’s rupee.
According to the report which is based on Bloomberg currency performance ranking, the Cedi dropped 1.1% on Wednesday, stretching its decline for the week to 5.2%, which marks the currency’s worst fall since March 29, 2019.
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The cedi has been struggling to measure up to other currencies since the outbreak of covid. The Central Bank of Ghana said the cedi began the year at $1.00 to GH¢6.02, but has fallen to an average of GH¢9.37 to $1.00, meaning it has lost GH¢3.30 of its value to the dollar in less than 8 months.
Ghana’s central bank has been tightening its monetary policies to tame the tide. The measures taken by the central bank include pushing interest rates up as inflation rises.
As of July, Ghana’s headline inflation rate stood at 31.7%, more than 2% increase from the 29.8% it recorded in the previous month. This was driven by both food and nonfood price pressures. The monetary policies have failed to yield the needed result as the country’s currency continues to spiral downwards.
Against this backdrop, the central bank held an emergency Monetary Policy Meeting (MPC) on Wednesday where it agreed that the interest rate would be further raised.
“Under the circumstances, and considering the risks to the inflation outlook, the Committee decided on a 300 basis points increase in the Monetary Policy Rate to 22 percent,” the Bank of Ghana said at the end of the MPC.
The new adjustment on interest rate is expected to help in cushioning rising inflation, which has impacted the execution of the country’s 2022 budget.
“Revenue has not kept pace with projections and created financing challenges. In the absence of access to the international capital market and given the constrained domestic financing, central bank overdraft has helped to close the financing gap as reflected in the mid-year budget review. The Bank of Ghana is working with the Ministry of Finance to agree on a cap on the overdraft,” the bank said.
The MPC noted that whilst addressing the immediate financing problems, ongoing policy discussions with the IMF are expected to address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and provide a sustainable balance of payments cushion.
“To boost the supply of foreign exchange to the economy, the Bank of Ghana is working collaboratively with the mining firms, international oil companies, and their bankers to purchase all foreign exchange arising from the voluntary repatriation of export proceeds from mining, and oil and gas companies. This will strengthen the central bank’s foreign exchange auctions,” the bank said.