Cedi poised for a decline if Fed rate increases

cedis-604x330There are fears the cedi is likely to depreciate further against the dollar in the coming days if America’s central bank, the Federal Reserve goes ahead to increase rates.
The Federal Reserve is widely expected to raise its benchmark interest rate today in order to reduce the risk of a burst of inflation.The rate hike is expected to push up the value of the dollar against other currencies although the dollar has already been rising fast this year as expectations of a rate rise have piled up.

Economists around the world are predicting the Federal Reserve, will increase interest rates for America which is the world’s largest economy today in order to reduce the risk of a burst of inflation.

The move has a deep economic significance because this will be the first time the Fed has put up rates since 2006.

On the face of it a hike would signal the US economy has returned to something like normality and has finally recovered from the deep damage inflicted by the global financial crisis.

But here in Ghana the hike will be bad news for us especially for the cedi.

According to Economist Dr Ebo Turkson increasing the Fed rates will see the cedi struggling against the dollar and believes foreign exchange inflows from a likely Eurobond issue early next year may save the cedi from this development.

Another thing that will be negatively affected if America’s central bank goes ahead to increase its interest rates is government’s plans to issue another Eurobond early next year.

Dr. Ebo Turkson fears the Eurobond may attract at least a 11 percent interest if the US Federal reserve increases its rates and Ghana goes ahead to issue early next year.

“We paid 10.75 the last time we are going to probably with a higher rate especially given the fact that by that time the US Fed rate has been increased and if it does and the UK also somewhere in February then it means that we need to entice investors with a higher yield for them to decide not to send their monies to the US or UK but to give that money to you so that is the challenge that we will be facing… the way government is desperate for the money, the investors will also want to see if they will get a higher rate which will definitely be much higher,”

Meanwhile Managing Director and Head of Africa Macro Research Global Research of Standard Chartered Bank Razia Khan is also warning a hike will be disastrous for sub Saharan African countries including Ghana

source: citifmonline.com

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