The local currency will hit ¢6.24 is expected to cross the 6 cedi mark against the dollar even before the end this year.
That’s the projection by Economic and finance Think Tank, Center for Economics Finance and Inequality Studies CEFIS’ Cedi outlook report this year.
The Projection was contained in the CEFIS’s Economic Forecast and cedi’s outlook for the forest market this year.
End Year Value of the Cedi and Mid- Year
The Center in the report is projecting that the cedi will by the middle of this year hit 6 cedis 24 pesewas and will reach 6 cedis 45 pesewas.
Reasons for the Projection
According to the Think Tank, the projection is based on fact that the expected rebound of the economy will not be strong enough to support the cedi stability for 2021.
They argue that “The immediate effect of the pandemic will linger beyond 2021, which will also affect the cedi’s firm stability going forward” .
It was also worried that the cedi’s fortunes for the year will be affected by some financial commitments that they should undertake due to Many of the projects embarked on in the run-up to the 2020 election, will have to be paid for this year. All this they argue that will put some pressure on the cedi.
“This excess liquidity without a corresponding output, will destroy most of the gains (especially the exchange rate stability in 2020) made in the prior election year. This has also been factored in our forecast of Ghana Cedi exchange rate for 2021.
Exports and Revenue challenges and impact on the Cedi
CEFIS in the report noted that they expect exports to still struggle this year despite, despite the expected opening up of economies this year. Another area, which they think believes will impact negatively on the Cedi, as to do with revenue shortfall and how that may affect financing of the budget deficit going forward, which may not be good again for the Ghana cedi. The think tank also believes that, government’s finances might be under some pressure this year, as most debts are expected to mature.
Bank of Ghana and the Cedi Performance
But in the same report, they do acknowledged that the Bank of Ghana’s forward sales , or auction has gone a long to help stabilize the Ghana cedi from last year . But from report , it was clear that the main, challenge for the cedis is coming from the Government side in relation to the expenditure and revenue and not lags with the Bank of Ghana is managing the situation. However there some that are of the view that looking at what the Bank of Ghana has put in place they don’t see cedis’s fortune worsening by the close of this year.
Strategies in managing Exchange Rate Risk
CEFIS in their report noted that however proposed some internal strategies that can be adopted by Businesses to manage the situation. This includes
Invoice in home currency
In this strategy the Ghanaian business entity invoices in Ghana cedi. In a situation like this, the currency risk is passed onto the customer or the supplier. Companies that may opt for this strategy should have strong competitive strength, and high switching costs for the customers and suppliers. Companies that adopt this strategy, should know that their competitors may prefer to invoice in currencies of their clients and suppliers; and this behavior may not be in the interest of the company pursuing invoicing in home currency.
Countertrade
– is fashioned out like a barter trade, where the trading parties exchange the equivalent amount of goods and services. The disadvantage with countertrade is that management of the company will have to resolve the tax implication of this type of payment for goods and services in international trade.
External Strategies
These are strategies adopted after all internal means to manage the forex exposures have been exhausted. Also, these strategies are in many instances expensive, since it may demand the setting up of a treasury function within the organization; hence, not recommended for small firms in Ghana. In many instances, the external strategies are suited for banks, investment and fund management companies, pension funds with cross border investment, multinationals, and central banks. The strategies available to these firms’ entities are forward contracts, money market hedges, futures, options, and swaps. We are yet to see a fully functioning currency derivative market in Ghana; hence these strategies may not exist on the Ghanaian market.
Bank of Ghana on the Cedi stability
The Bank of Ghana on the other hand had argued that they have put in place several measures that will help stabilize the Ghana cedis especially in the first quarter of this year. This includes building up enough dollar reserves and other measures that will help stabilize the cedi for 2021. The Ghana Cedi ending trading on 25 January 2021 firmly stabilizing against the dollar. On the Average you may need about 5 Cedis 85 pesewas to get a dollar that on Monday.
source: myjoyonline