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Commercial banks have reported of increased dollar supplies by the Bank of Ghana (BoG) to meet demands for the greenback. Speculations of dollar shortage have fuelled a rush demand for the world’s most preferred trading currency, forcing the cedi to shrink in value.

But some heads of treasuries of commercial banks, who spoke to the Graphic Business, say they have enough reserves of dollars to meet demands.

The Chief Finance Officer of Ecobank Ghana, Mr Edward Botchway, said the bank had enough dollars to meet customers’ demands.
‘’We will surely meet the needs of any customer who walks to any of our branches demanding dollars,’’ Mr Botchway said. Other commercial banks on the High Street in Accra also gave similar responses.
Steady drops

The cedi has since the beginning of the year witnessed steady drops in its value and by June 22 this year was trading at GH¢4.4051 to the dollar on June 22 when it peaked.

But a swift intervention by the central bank to increase dollar sales on the interbank market to US$20 million a day, up from US$14 million a week stemmed the tide which saw the cedi recover more than 20 per cent of its value and was reading at GH¢3.10 to the dollar by July 15.

Analysts were also hopeful that the increased dollar inflows from the almost a billion dollar Eurobond sale, a US$1.8 billion cocoa syndication loan, the resumption of almost US$400 million and aid from development partners would help sustain the gains by the Ghana cedi.

The gradual switch to gas in the production of electricity should also reduce pressure on the foreign exchange market and allow the central bank to rebuild its external reserves to a higher level than programmed by the end of the year.
Dollar shortage

But reports about dollar shortage in the market helped fuel increased speculations that exerted pressure on the cedi forcing the local currency to begin a new round decline against the dollar.

The gains by the cedi are, therefore, seen as possible evidence of the impact of Ghana's aid programme with the fund, which started in April and is aimed at stabilising its economy and jump-starting growth.

The July gains by the cedi stunned many analysts who had forecasted the local currency to close the year between GH¢3.9 and GH¢4.3 per dollar.

But now, the cedi is selling at GH¢3.9777 to the dollar as of August 20, at the interbank price, showing a drop of more than 26 per cent since its July recovery.

Fueling speculations

The Governor of the Bank of Ghana, Dr Henry Kofi Wampah, attribute the rapid decline of the cedi to speculations, which are fuelled by reports of non-availability of the greenback.

“The market players are affected by such speculation. People who do not need dollars for example at the time start demanding them to avoid the end period level. Also people who do not want to lose their purchasing power then start buying. These people may not even be importers at all,” the governor said.

The availability of dollars from the commercial banks confirms the BoG’s position that enough dollars have been supplied to the banks more than what the market actually require.
Supporting the market

“We stand ready to support the market at any time. Sometimes we can pump in more than the US$20 million; sometimes less. It depends on what the market can take”, Dr Wampah said at the July Monetary Policy Committee news conference.

“Currently, there is so much liquidity coming in such that the market may not be in a position to take what we want to sell. When we say we are putting in US$20 million it does not mean that every day we put in US$20 million. Sometimes the market cannot take it. There are occasions when we even sell about US$50 million”, he added.

The increase in dollar supplies by the central bank to the market is therefore expected to dampen rising speculation which creates artificial demand, which makes the cedi depreciate faster.

“But if we have stability, inflation is low and if we have macroeconomic stability such activities of speculators will reduce significantly. Part of the work is the responsibility of the Bank of Ghana, the Ministry of Finance and other sectors and that is what will help sustain the gains that have been made”, Dr Wampah said. — GB