Dr. Ernest Addison
The Bank of Ghana (BoG) has stated that it has adequate reserves to manage shocks to the foreign exchange market, having added over US$600 million to the current foreign exchange reserve levels over the first five months of the year.
Dr. Ernest Addison, BoG Governor, who gave the assurance at a press conference in Accra yesterday, said the improved reserves position was also backed by strong liquid monetary gold levels of over 26.6 tonnes (estimated at US$2.1 billion) as a result of the very successful domestic gold purchase programme.
“The Bank of Ghana remains fully committed to providing stability in the exchange rate for the cedi,” he said, emphasising, the bank had enough foreign exchange reserves to support the market and therefore economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs.”
According to him, the exchange rate pressures witnessed in recent weeks reflect a weakening of the current account surplus, due to higher import demand and lower export revenue, especially a sharp fall in cocoa export earnings adding that the foreign exchange market pressures also reflected robust public spending on Independent Power Producers (IPP) arrears payment, and capital expenditure outlays.
“There are also indications of increased pressures from importers diverting foreign exchange demand requirements into informal markets, increasing speculative demand for foreign exchange,” Dr. Addison asserted.
Strong Measures
The Bank of Ghana is taking measures to improve market conduct and instill sanity in the market for foreign exchange. To this end, the bank has worked with the Ghana Association of Banks to streamline documentation requirements for foreign payments to minimise the incentives to resort to the informal markets.
To deal with the high demand pressures on the foreign exchange market, the Bank has taken steps in the past few weeks to directly absorb foreign exchange needs of some corporate institutions, and this has led to a reduced pipeline demand for foreign exchange from the commercial banks.
Illegal Operators
The Bank is fully aware of the operations of illegal operators in the foreign exchange market and is working with the Financial Intelligence Centre to sanitise the foreign exchange market.
In line with this, all foreign exchange bureaus advertising rates outside their premises and on local media platforms must immediately desist from the practice.
FX Bureaux
He said BoG had set up a task force to monitor all the foreign exchange bureaux to ensure compliance.
“The foreign exchange market is also affected by sentiments and pronouncements made in this election year and we urge all to manage pronouncements which weakens confidence in the local economy,” he said.
Fiscal Front
On fiscal policy, he said expenditures outpaced revenue growth in the first quarter, reflecting the front loading of IPP arrears payments, therefore maintaining strict fiscal discipline for the rest of the year would be crucial to strengthen confidence in the economy.
Furthermore, he said, “On general macroeconomic conditions, the committee was of the view that while implementation of policies—at the macro and structural reform level — are consistent and align well with the tenets of the IMF-supported programme, there is the need to ensure that the recent depreciation of the currency does not become embedded into the pricing behaviour of businesses and inflation expectations.”
“The strong reserve build-up of about US$2 billion since the beginning of the IMF programme, the strong disinflation process, significant progress on fiscal policy consolidation, positive current account balances, and the good progress on the external debt restructuring process, have all worked together in concert to deliver enough buffers to support the exchange rate.”
By Samuel Boadi