The Institute for Economic Affairs (IEA) has warned that the Bank of Ghana’s intervention in the forex market alone cannot guarantee lasting exchange rate stability without comprehensive reform measures.
After peaking at GH¢16.30 in October, the cedi declined to GH¢15.37 in November and further to GH¢14.70 in December. The GHS/GBP and GHS/EUR rates followed similar patterns.
The IEA attributed this decline to increased intervention by the Bank of Ghana in the lead-up to the 2024 election.
“In fact, by October, before the intervention, the GHS/USD had risen to GH¢16.30,” the institute noted.
“The question is whether the appreciation in November and December can be sustained. The fact is that, as indicated below, the Bank of Ghana’s intervention alone cannot ensure lasting exchange rate stability without far-reaching reform measures,” it added.
The year-to-date depreciation of the cedi against the dollar peaked at -27.1% in October 2024 before improving to -22.7% in November and -19.18% in December. This followed a 27.8% depreciation in 2023.
The economic think tank highlighted that the cedi has a history of chronic depreciation due to the persistent gap between foreign exchange (FX) demand and supply. Closing this gap, it noted, requires policies to curb FX demand and boost FX supply.
“On the FX demand side, it is necessary to actively promote domestic production of import substitutes to reduce demand for FX; entrench fiscal and monetary discipline to ease demand pressures, including demand for FX; and enforce domestic FX market regulations,” the IEA stated.
On the supply side, the think tank recommended active promotion of exports and remittances, as well as greater Ghanaian ownership of resources and economic assets to increase FX inflows.
It concluded that while these proposals are not new, they have not been given the necessary attention, making it important to reiterate them.
READ ALSO: