The Bank of Ghana’s latest economic and financial data have indicated that the Central Bank’s gross foreign assets reduced from $5.8 billion in December 2015 to $5.1 billion at end of June 2016.
The reduction in foreign assets over the past six months by more than $700 million is quite worrisome.
Analysts have indicated that should any economic challenge confront the country in the near future, the Central Bank can only have dollars to cover imports for just two months and eight weeks.
The situation could also affect the ability of the Bank of Ghana to release dollars required to support operations of commercial banks, and also imports which have the tendency of negatively impacting the stability of the local currency.
Sources at the bank have attributed the development to the recent directive to exporters to repatriate all their profits into the country and lodge them with local commercial banks.
It said previously all the dollar cash ended up in the BoG’s vaults but currently it has had to share dollars with commercial banks.
External sector performance
The latest monetary policy report also revealed that the relatively low commodity prices and reduced volume of exports impacted the trade balance in the first half of 2016.
The provisional trade deficit over the period widened in comparison to the corresponding period last year.
Foreign exchange
Over the first six months of 2016, it said volatilities in the foreign exchange market have subsided significantly alongside relative stability in the local currency largely supported by tight policy stance and improved foreign exchange inflows.
On the interbank market, the cedi cumulatively depreciated by 3.3 percent against the US dollar in the year to June 2016 compared to 26.1 percent over the same period of 2015.
Inflation
Headline inflation declined from 19.2 percent in March to 18.7 percent in April.
However, with 5 percent upward adjustment in the ex-pump prices of petroleum products and its pass-through effect on prices, headline inflation moved up slightly to 18.9 percent in May but has since declined to 18.4 percent in June.
These observed trends in inflation over the first half of 2016 have largely been influenced by increases in the prices of petroleum products, utility tariffs and food prices.
The report said the latest consumer sentiment survey, conducted in June, reflects marginal uptick in inflation expectations based on the unanticipated increase in petroleum prices and the recurring energy supply challenges.
Way forward
In the outlook, the tight policy stance, inflows from the cocoa pre-export finance facility and expected issuance of the Eurobond in the last quarter would boost reserves, improve liquidity on the foreign exchange market and support the disinflation process over the forecast horizon.
By Samuel Boadi
samuel10gh@yahoo.com