Forward auction to stabilize cedi in 2021 – Economist predicts

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An Economist with Databank, Courage Martey, has indicated the use of forward auction has a high potential to stabilize the Ghanaian cedi.

According to him, the move on the interbank foreign exchange market in the country will yield positive results in the first quarter of 2021.

Mr Martey, in interaction with Citi Business, urged the Bank of Ghana to continue with its bi-weekly forex auctions which he noted has helped participants on the exchange market to lock in on exchange rates without having to rush for physical cash.

In his words, “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 has 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”.

Meanwhile, the cedi has suffered depreciation for several years with investors having the fear of dealing with the local currency.

The situation which occurs within the last quarter of a year through to the first quarter of a new year is usually attributed mainly to a hike in commercial activities during the festive season and profit and dividends repartition by foreign investors in the first quarter of a new year.

Businessmen thus find it difficult to take strategic decisions for fear of the value of the cedi changing from one day to the next.

However, forward auctions enable foreign exchange dealers to make forex purchase through spot sales that include a purchase made on a day and settlements done in two days.

Courage Martey predicted that with the continuous use of forward auctions by the central bank, the cedi is highly likely to be stable in 2021.

“What we also noticed from this year is that typically the Bank of Ghana will alot 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,” he explained.

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