The Bank of Ghana (BoG) was actively intervening in the foreign exchange market to prop up the Cedi, despite official denials, a fact that was later confirmed by the International Monetary Fund (IMF).
According to Professor Godfred Bokpin, an economist from the University of Ghana, this excessive intervention caused market distortions, leading to the recent correction in the Cedi’s value.
In an interview on Joy FM’s Super Morning Show on Tuesday, September 16, Prof. Bokpin stated, “The Cedi jumped the gun in terms of the pace of the appreciation.”
He revealed that the BoG’s presence in the market was evident, despite its official position.
“We also saw that Bank of Ghana stepped in strongly and in fact on this show we had indicated that Bank of Ghana was actively in the market… Even though they denied that, only for the IMF to come and shine the light,” he said.
While acknowledging that some level of central bank intervention is normal under a managed flexible exchange rate regime, Prof. Bokpin suggested that the BoG’s actions were excessive.
He noted that the first quarter of the year saw subdued demand for foreign exchange due to government expenditure restrictions and reduced payments, which created an opportunity for the central bank’s actions to have a greater impact.
He believes the central bank’s intentions were good, but the timing and scale of the intervention led to an unsustainable surge in the Cedi’s value.
In a key development, Prof. Bokpin disclosed that a team from the IMF is scheduled to arrive in Ghana from the end of September to the first week of October. He suggested that the BoG may reduce its market intervention to avoid raising further red flags with the Fund, which has already expressed concerns about excessive intervention.
“The Fund had raised an issue about the excessive intervention in the market,” he noted.
The upcoming IMF mission is crucial as it will conduct the fifth review of Ghana’s $3 billion Extended Credit Facility (ECF) programme.
A successful review will unlock the next tranche of funding, an estimated $360 million.
While this amount is not sufficient to fully stabilise the Cedi, Prof. Bokpin is optimistic about the overall outlook.
He believes a successful IMF review will significantly boost offshore investor sentiment, which is critical for the government’s plans to issue new bonds and raise capital.
He concluded that the current Cedi correction is a necessary market adjustment following the central bank’s previous actions.
The true stability of the currency, he stressed, will depend not on interventions but on strengthening the nation’s economic fundamentals.