Closing Bullish Cedi View
We have decided to remove a bullish view on the Ghanaian cedi from our Asset Class Strategy table, with a loss of 3.65% on a total return basis. The view (initiated on August 5) was based on the expectation that news of forthcoming assistance from the IMF would boost investor confidence and the currency - similar to the move seen in the Zambian kwacha in June 2014 when the authorities there announced IMF support.
The cedi has stabilised following the news in early August, but it has not made the near-term retracement that we envisioned. This perhaps reflects investors' lingering concerns regarding the IMF deal, and whether or not it will bring Ghana's fiscal and debt dynamics under control. Few details have been announced and the negotiations (scheduled for September 2014) could become protracted, or even fail - although our core scenario is for an agreement to be struck, mainly consisting of technical oversight and enhanced monitoring of fiscal and debt dynamics.
In spite of the forthcoming assistance, we retain a bearish view on the cedi over a two-year time horizon given that inflation will stay high and the current account deficit will remain significant (see 'GHS: Near-Term Recovery, Long-Term Depreciation', August 5).
|Stabilising But Not Appreciating|
|Ghana - Exchange Rate, GHS/USD|