UPDATE ON THE EXCHANGE RATE
Good Morning Dear Friends,
Today I wish to share with you the recent developments in the foreign exchange market. In a market-based economy such as ours, the exchange rate, like any other price is fundamentally affected by supply and demand of foreign exchange in the market. A net demand for foreign exchange, all else constant, results in depreciation while a net supply of foreign exchange contributes to a currency appreciation. The recent depreciation in the exchange rate is due to a combination of domestic and international market developments.
Firstly, on the international front, the US Dollar has broadly strengthened against other currencies following the US Federal Reserve Bank’s decision to reduce the amount of liquidity it injects into the economy through its monetary stimulus program (commonly referred to as Quantitative Easing).
Consequently, emerging market currencies have generally depreciated against the US Dollar. For instance, since the beginning of the year, the Ghanaian Cedi and South African Rand have depreciated by 5.5% and 4.7% against the US Dollar, respectively.
In comparison, the Kwacha has weakened by 4.3% versus the US Dollar over the same period. In fact, since the beginning of the year, the Kwacha has appreciated by 0.5% against the South African Rand to trade at K0.52/Rand as at 20th February 2014. Secondly, economic activity has generally been steady in the recent past and in order to support this, there has been increased demand for capital imports, which has increased demand for foreign exchange.
Let me assure the nation, that our Government is closely monitoring the developments in the foreign exchange market and has in this regard tightened monetary policy consistent with the attainment of the inflation target of 6.5% for 2014.
However, on a positive note our Country’s Non-Traditional Exports (NTEs) have been on the rise and increased by 27% to US$3.6 Billion as at 31st December 2013. I therefore want to encourage the private sector to seize the opportunities in the export sector and expand their productive capacities as exports become relatively competitive on the world markets. MCS – 3/03/14