We believe that the naira’s rally will continue in the short term. The CBN will likely continue raising interest rates to signal to international investors its commitment to inflation targeting and orthodox monetary policy, which should support foreign currency inflows. Furthermore, the CBN has reported that it has cleared its estimated USD7bn backlog of foreign exchange requests, which should enable the central bank to allocate more dollars to meet current market needs. In addition, we expect that the operational start of the Dangote refinery in Q1 2024 will reduce the need for foreign exchange to finance fuel imports, thereby easing some of the pressure on the naira.
We also expect that the Ghanaian cedi will recoup some of its recent losses in the months ahead, ending the year at GHS12.25/USD (see chart below, left). The currency has depreciated by 11.0% against the US dollar so far this year, positioning it among the worst performing currencies globally. Indeed, the cedi has been on a rapid depreciatory trend since February, caused by investor concerns over Ghana’s progress of restructuring its commercial debt, as well as the sustained strength of the US dollar (see chart below, right). Moreover, Ghana’s international reserves remain low, covering just 2.7 months of imports in February (latest available data), which restricts the Bank of Ghana’s capacity to effectively intervene in the foreign exchange market.
