Currency analysts are supporting the Bank of Ghana to intensify its efforts to stabilize the forex market and help forecasting in the market.
It follows the central bank’s decision to halt the auction of dollars to banks in a bid to address the depreciation of the cedi.
Governor of the Bank of Ghana Dr. Ernest Addison in an interview with the Head of Business Desk at Citi FM, Vivian Kai Lokko in Washington, explained that the decision to halt the auctioning of dollars to commercial banks effective last Month, is to enable the regulator deepen the interbank exchange market.
“We have argued that it’s important for us to strengthen the interbank market for foreign exchange rather than going back to the system of auctioning foreign exchange. This is one of the ongoing discussions we are having with the IMF. So it’s an ongoing issue, I don’t see why the interbank market will not work,” he said.
Though the central bank was expected to auction a total of 120 million dollars to the commercial banks, it ended up auctioning 80 million dollars as it suspended the last 40 million dollars auction, scheduled for March.
The amount was realized from the 1.8 billion dollars cocoa syndicated loan for the 2016/2017 crop season.
This year’s auction also followed a similar one carried out in the last quarter of 2016.
But in January and February 2017, the auction yielded little result as the cedi depreciated significantly against the major trading currencies.
Analysts welcome cancellation
Economist and Senior Research Fellow at the Institute for Fiscal Studies (IFS) Dr. Said Boakye believes the move by the Bank of Ghana is a welcoming one.
In his view, the auction was not a sustainable means of arresting the cedi’s free fall.
“The original policy was one that was not working therefore the cancelation is a right decision…the Bank of Ghana will be able to manage its auctioning at its own choice it will be able to manage the foreign exchange market when it feels that it has to,” he observed.
The General Manager for Treasury at HFC Bank, Joseph Nketsia also explains to Citi Business News the central bank would have to stem efforts to regulate the market.
He suggests a possible reversal of the directive for exporters to surrender proceeds to their respective commercial banks.
“These are some of the interventions that we are expecting from the central bank to introduce onto the market for the market to find its own level rather than exporters surrendering their foreign exchange to the central bank and the central bank coming back to sell on the market.”
The analysts have however ruled out any significant impact of the move on the currency’s depreciation in the immediate term.
Solving perennial depreciation issues
While Dr. Said Boakye maintains that the fundamental solution to ending the perennial depreciation borders on diversifying the economy to increase exports, Joseph Nktesia believes the central bank could buy up dollars in cases of excess liquidity.
“Moment when there is too much liquidity of the dollar on the market, we expect that in such situations the Central bank could come in to buy dollars and we could have stability as a result. But instances where rather there is shortage on the market which could lead to a further depreciation of the cedi, then they will also come in to supply dollars to even out the situation,” Mr. Nketsia explained.
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