After suffering a massive loss of 22.44 percent versus the US dollar, the Ghanaian cedi came under pressure. This occurs despite efforts by Ghana’s central bank to raise interest rates in order to make up for shortages brought on by tensions around the world especially Europe.
To combat inflationary pressures, the US Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point. The rate rises make the dollar more expensive in comparison to the bulk of other currencies, notably the cedi of Ghana.
As a result, at a time when many emerging market (EM) economies are already failing and their currencies have already dropped against the dollar, a stronger US dollar supported by higher US interest rates tends to lower the value of emerging market currencies.
What you should know
- Nonetheless, the conflict between Russia and Ukraine is expected to have a substantial impact on Ghana’s exchange rate, particularly in the construction, agriculture, and international trade sectors.
- Russia and Ukraine accounted for around 2.5% of Ghana’s total non-oil imports and 0.4% of Ghana’s total exports in the recent past.
- Grain, wheat flour, and fertilizers are the most common Russian imports. In 2021, Russia accounted for roughly 28.7% of Ghana’s grain imports, while in the first two months of 2022, Russian grain imports accounted for 31.2% of total grain imports. In the first two months, Russia supplied 50.0% of the flour and 39.2% of fertilizer imports, respectively.
- Ghana’s major imports from Ukraine are iron ore and steel, which account for more than 60% of total iron ore and steel imports. As a result, supply disruptions and higher steel and iron ore import prices are almost certain to hit the building industry.
- The Bank of Ghana increased its primary lending rate by 250 basis points to 17%, signalling a tough stance against rising prices for everything from flour to sugar to fuel, as well as a weakening local currency that has harmed investor confidence