Cedi gains caused drop in remittance inflows – BoG Governor

The Governor of the Bank of Ghana (BoG), Dr Johnson Asiama Pandit, says the Central Bank was compelled to support the foreign exchange market after the sharp appreciation of the cedi unexpectedly slowed remittance inflows into the country.

Speaking in Washington D.C. on the sidelines of the IMF/World Bank Spring Meetings, Dr Asiama explained that while the currency’s appreciation was initially seen as a positive signal of economic strength, it had unintended consequences on the flow of foreign transfers.

“Remittance inflows are another huge source of foreign exchange injection. You are looking at over six billion dollars per year in remittance inflows. However, immediately after the currency appreciated, we saw a decline,” he stated.

According to the Governor, this slowdown occurred at a time when the Bank of Ghana was making significant external payments, creating pressure on the local foreign exchange market.

“Between the second and the third quarter, we had to make a number of lumpy payments. There were all these large arrears in payments to some of the Independent Power Producers, amounting to billions of US dollars,” the Governor noted.

He indicated that the Central Bank also faced additional market pressures from domestic bondholders seeking to exit after the cedi’s appreciation.

“We also had domestic debt-affected bondholders that wanted to exit because the currency had appreciated. We had to allow them to go,” Dr Asiama said.

The BoG Governor revealed that these “lumpy payments” between July and August coincided with a period of low liquidity in the interbank foreign exchange market, necessitating direct Central Bank intervention.

“Because all these inflows accrue to the Central Bank, and it was happening at a time when we saw a decline in remittance inflows, the Central Bank needed to step in. The interbank FX market had dried up during that time, and so the Central Bank needed to provide that support,” he noted.

Dr Asiama dismissed suggestions that the Bank of Ghana had over-intervened in the market, insisting that its actions were purely aimed at stabilising volatility and ensuring orderly market operations.

“Yes, there were allegations about whether we were intervening in the market, but that was not exactly the case. All we seek to do is to limit the volatilities in the markets, to ensure that we have smooth dynamics in the market, and that is the framework we will maintain going forward,” he clarified.

The Governor further disclosed that conditions have since improved, with increased activity within the interbank market following targeted reforms.

“We have written to the mining firms, for example, to channel all their inflows through the commercial banks. We are beginning to see some pickup in activity in the interbank FX market,” he stated.

Dr Asiama clarified, however, that proceeds from gold exports remain an exception, as such revenues are channelled directly into the Central Bank’s reserves.

“As of yesterday, we had committed to make available 150 million dollars. This morning, the market had picked up only 90 million dollars, so 60 million automatically goes into our reserves. On Tuesday, we made available 150 million dollars, and the market picked up less than half. So automatically it goes into our reserves,” Dr Asiama revealed.

He emphasised that the Bank of Ghana does not “over support” the market, emphasising that its interventions are guided by the need to smooth fluctuations rather than to fix prices or maintain an artificial rate.

“With activity picking up in the interbank FX market, the Central Bank would not have to be that present,” Dr Asiama added.