Economist and former Deputy Governor of the Bank of Ghana Dr. Mamadu Bawumia has attributed the continuous depreciation of the cedi over the last few years, to bad policies introduced by the Bank of Ghana.
The cedi took a nose dive against other major trading currencies and has been tagged one of the worst on the African continent.
The Finance Minister Seth Terkper in his presentation of the 2016 budget statement to Parliament said “Except for the month of July, the Ghana Cedi in 2015 depreciated against the USD, Euro and Pound Sterling by an average of about 14%”
[contextly_sidebar id=”cQ37u9swOvAzXbAj96N8f6MxOgKDWOkK”]Bawumia who was responding to the governing National Democratic Congress (NDC) 2016 budget statement at the New Patriotic Party (NPP) headquarters in on Wednesday said; the cedi has “depreciated from some 1.2 to the dollar in 2009 to 3.8 to the dollar currently, having reached 4.7 to the dollar early this year.”
The Central Bank in a bid to save the cedi from further depreciating, introduced some policies including, pumping of some $20 million cedis daily on the foreign exchange market.
But the party’s presidential candidate described this and other policies as “misguided and weak.”
“On the exchange rate, the Ghana cedi has recently obtained the dubious distinction of being one of the worst currencies in the world as a result of weak fundamentals and some misguided policies by the Central Bank.”
According to him, the cumulative depreciation of the cedi in the last seven years is about 70%, adding that by the end of 2016, the cumulative depreciation of the cedi will likely be 90%.
This, he said, “is in contrast to the remarkable stability of the cedi during the eight years of the NPP government with the a cumulative depreciation of some 40 percent in eight years.”
The cedi depreciation has been of major concern to the citizenry.
A private legal practitioner, Dr. Ephraim Baiden dragged the BoG to the Supreme Court to compel it to devise measures to stabilise the cedi.
Interest rates
The Bank of Ghana in a bid to tame the poor performance of the cedi increased its policy rate to 25 percent but Bwumia believes this might not augur well for the economy as this is “highest policy rate since the start of the inflation targeting regime in 2002.”
“One of the consequences of the insatiable appetite for government borrowing to finance large fiscal deficits has been the high and rising interest rates faced by borrowers in Ghana. Ghana today is amongst the countries with the highest interest rates in the world.91-day Treasury bill rates are at some 24% and mortgage loans are at some 33%! Banks and savings and loans companies are charging interest rates at over 30%.”
“The days when banks used to chase customers to come for loans are long gone. Today banks are shying away from lending to businesses. Why risk lending to business when you can get a 25% risk-free return from government? Banks are therefore focusing on lending to government and crowding out the private sector in the process. This used to also be the case when the NDC was last in government – the value indeed is still the same.”
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By: Marian Ansah/citifmonline.com/Ghana
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