The Governor of the Bank of Ghana, Dr. Henry Wampah told Ghanaian bankers that the economy continued to suffer from the persistent decline in commodity prices coupled with supply side shocks that negatively impacted on both prices and output.
“Consequently, these pressures from the external sector impacted on the foreign exchange market,” he said.
He noted that the first half-year witnessed considerable exchange rate volatility as foreign exchange supply reduced as a consequence of the commodity price shocks, and demand pressures mounted.
As a result, he said, cumulatively, the local currency depreciated by 26.1 per cent during the first half of the year.
“However, with the appropriate monetary policy response, the continuing fiscal consolidation and prospects of improved foreign exchange supply during the second half of the year, the trend reversed in July 2015 as the cedi appreciated.
Although the currency continued to depreciate again from August, the pace slowed considerably, bringing the cumulative depreciation to 15.6 per cent as at end November 2015, significantly lower than the same period in 2014,” he said.
Dr. Wampah indicated that in the coming year, the Bank of Ghana will continue to monitor developments in the market and take appropriate measures when necessary to prevent excessive volatility of the currency and gradually bring down inflation and inflation expectations.
“In particular, the Bank of Ghana will continue to maintain a tight monetary policy stance until inflation expectations are well anchored. This, together with continuing fiscal consolidation as announced in the 2016 budget and the structural reforms in the foreign exchange and money markets will help improve stability in those markets,” he said.
He outlined what he calls some of the key initiatives that the central bank intends to implement to ensure a more efficient and well-functioning foreign exchange and money markets.
He said modalities are being put in place to surrender portions of the export receipts from cocoa and gold directly to the market to improve liquidity and depth in the foreign exchange market. Notwithstanding this, the Bank will continue to be an active participant in the foreign exchange market to smoothen volatilities.
“Bank of Ghana will come out with guidelines that will ensure that all export proceeds are repatriated into the banking system in accordance with the foreign exchange act.
In 2016, the Bank of Ghana will introduce standard documentation for derivatives such as Master Swap Agreement, Local Master Swap Agreement etc. to deepen market activities,” he said.
Dr. Wampah pointed out that, additionally, the Bank of Ghana, in conjunction with the Ministry of Finance and other stakeholders, has reviewed the requirements and responsibilities, guidelines and the code of conduct governing the Primary Dealership in Ghana.
“In line with the revised guidelines, Primary Dealers will be expected to underwrite auctions, warehouse and retail those debt securities on the secondary market at a spread. This will be fully implemented in 2016,” he added.
By Emmanuel K. Dogbevi