The Ghana cedi has continued its impressive performance against the US dollar, gaining more ground today following the anticipated approval of a $3 billion Extended Credit Facility Arrangement for Ghana by the International Monetary Fund (IMF).
According to Bloomberg, the cedi has emerged as the top-performing currency against the dollar in the past six months, experiencing a remarkable 33% increase since November 2022, which is the largest gain among approximately 150 currencies and a significant reversal of previous losses.
Furthermore, Ghana's dollar bonds have also delivered strong returns, with investors enjoying nearly 12% gains, surpassing the 3.6% average for emerging and frontier peers in a Bloomberg index.
Although the local currency has experienced an 8.7% depreciation against the US dollar since the beginning of the year, it has performed relatively well compared to the interbank market.
As of May 17, 2023, checks conducted by Joy Business at forex bureaus indicate that the cedi is trading at ¢11.30 to the American greenback.
In the period leading up to May 12, 2023, the cedi exhibited relative stability, consistently trading between ¢11.7 and ¢11.9 against the dollar since late March 2023.
Investors remained cautiously optimistic that Ghana would secure the IMF deal approval in the second quarter, with the possibility of it being granted in May, as indicated by government officials.
When Ghana received financing assurance from G20 Common Framework members, market sentiment improved, leading to increased interest among investors to acquire US dollars at lower rates.
Economist Courage Martey commented, “Immediately on Friday [May 12, 2023], we saw that reflected in the Ghana cedi performance as the local currency gained 1.0% on Friday alone. The gains have continued into this week as the market expects the approval this week, likely today, as communicated by government officials.”
However, analysts have expressed concerns about the spread between the buy-side and sell-side rates.
Martey highlighted that the buy-side rates are decreasing faster than the sell-side rates, leading to a widening spread. Traders are eager to purchase US dollars at lower prices but are reluctant to sell at significantly reduced rates.
This suggests that the appreciation of the cedi is currently driven by market sentiment and the positive impact of the anticipated IMF program approval, rather than a substantial improvement in economic fundamentals.
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