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Forward auction likely to stabilise cedi in first quarter of 2021 – Economist

Ghana Ghana Business News

The use of forward auctions on the interbank foreign exchange market in the country will be key in keeping the cedi stable within the first quarter of the year.

This is according to economist with Databank, Courage Martey.

The cedi has over the years experienced some depreciation from the last quarter of a year through to the first quarter of a new year.

This is normally due to increased commercial activities during the yuletides, profits and dividends repartition by foreign investors in the first quarter of a new year among other reasons.

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The situation which makes the cedi unstable also makes it difficult for investors and businessmen to take key decisions out of fear that the value of the cedi may change from one day to the next.

However, with the use of forward auctions, foreign exchange dealers will be able to make forex purchase through spot sales that include a purchase made on a day and settlements done in two days.

In an interview with Citi Business News, Courage Martey was of the view that unlike previous first quarters which suffered significant cedi depreciation, the use of forward auction will help keep the cedi stable in 2021.

“First of all the bi-weekly forex auctions that are being conducted by the Bank of Ghana has been very helpful because they are forward transactions that help participants on the exchange market to lock in exchange rates without going to rush for the physical cash and that ha helped to reduce speculative and panic transactions on the spot market and so continuing these forward auctions will deepen forex trade on the market and that should help reduce panic on the spot market”, he said.

He added, “What we also noticed from this year is that typically the Bank of Ghana will a lot twenty-five million dollars at each biweekly forward auction but in the first quarter of this year they actually allotted twenty million dollars per auction every two weeks, so it shows that the Central bank is preparing to support the cedi with all policy tools available”.

Citi news


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