In a surprising turn of events, the Ghana Cedi has experienced a remarkable surge, appreciating by 12 percent against major currencies. This is a stark contrast to the previous year when the Cedi faced significant depreciation. Dr. Zakaria Mumuni, the First Deputy Governor of the Bank of Ghana (BoG), has stepped forward to explain this phenomenon, attributing it to strategic domestic policies and interventions implemented by the central bank. This article will analyze Dr. Mumuni’s defense of the BoG’s actions, highlighting how these policies have contributed to the recent Ghana Cedi appreciation.

Dr. Mumuni emphasizes that the Bank of Ghana policy has been instrumental in stabilizing the currency, fostering renewed confidence in the market. He asserts that the central bank’s commitment to a flexible exchange rate, coupled with prudent monetary measures, has yielded positive outcomes, leading to the strengthening of the Ghana Cedi.

The Unprecedented Cedi Appreciation

Dr. Mumuni proudly highlights the 12.2% year-to-date appreciation of the Cedi, describing it as an “unprecedented feat.” This achievement is particularly noteworthy when contrasted with the 13% depreciation experienced during the same period last year. “This is the strongest the Cedi has been in the first four to five months since the floating rate regime began,” Dr. Mumuni stated, underscoring the significance of this reversal.

Domestic Policy as the Key Driver

According to Dr. Mumuni, domestic policy is the primary driver behind the Ghana Cedi appreciation, outweighing the influence of external factors. He credits the Bank of Ghana’s “careful mix of policies” for this positive outcome. These policies include hiking interest rates and tightening monetary policy, decisions that initially faced backlash from various quarters. “We faced opposition, including concerns raised by GUTA and some analysts,” Dr. Mumuni acknowledged, “but we remained focused on our objectives.”

What specific policies contributed to the Cedi’s appreciation?

The central bank implemented several key measures to stabilize the currency. These included adjusting the monetary policy rate, increasing the cash reserve ratio, and actively managing liquidity through open market operations. These policies aimed to reduce excess liquidity in the market and curb speculative activities that were contributing to the Cedi’s depreciation.

BoG’s Aggressive Liquidity Management

To “reengineer the disinflation process,” as Dr. Mumuni puts it, the Bank of Ghana aggressively tightened monetary policy. This involved employing open market operations to manage liquidity and increasing the cash reserve ratio to sterilize Cedi liquidity. These measures were designed to reduce the amount of money circulating in the economy, thereby putting downward pressure on inflation and stabilizing the Ghana Cedi.

By reducing the availability of Cedi, the Bank of Ghana aimed to make it less attractive for speculators to bet against the currency. This, in turn, helped to stabilize the exchange rate and promote confidence in the Ghana Cedi.

Restoring Credibility to Ghana’s Macroeconomic Framework

Dr. Mumuni expresses confidence that the positive results seen with the Ghana Cedi appreciation are a testament to the effectiveness of the BoG’s policies. He views the Cedi’s strength as evidence of policy discipline and effective market management. The ultimate goal, he asserts, is to restore credibility to Ghana’s macroeconomic framework, creating a stable environment for investment and economic growth.

Concluding his remarks, Dr. Mumuni stated, “The Bank of Ghana remains committed to maintaining policy discipline and ensuring the stability of the Ghana Cedi. We believe that these measures are essential for building a strong and resilient economy.”

In summary, Dr. Mumuni’s defense underscores the critical role of domestic policy and liquidity management in the recent Ghana Cedi appreciation. The Cedi’s impressive gains reflect the potential impact of strategic interventions and disciplined monetary policy on the Ghanaian economy. Maintaining this policy discipline will be crucial for ensuring sustained economic stability and further strengthening the Ghana Cedi.