The Dovish Fed is good for the Cedi

No one was really surprised that the Federal Reserve maintained its benchmark interest rate between 0.25% and 0.50%. But the fact that the Fed focused more on the global economic and financial weakness and less on the improving domestic figures was a bit of surprise.

The Fed’s preferred measure of inflation increased to 1.3% Y/Y in January, bringing it closer to the 2% target. With the latest jobs report also being positive, markets expected more hawkish sentiments than the Fed expressed.

The euro gained against the dollar upon the announcement.

Chart EURUSD, M5, 2016.03.16 20:56 UTC, GhanaFx Company Limited, MetaTrader 4, Real

And the dollar plunged against the yen.

Chart USDJPY, M5, 2016.03.16 21:12 UTC, GhanaFx Company Limited, MetaTrader 4, Real

But what is of the most interest to me is the effect that this will have on the cedi. The Institute of Chartered Accountants England and Wales identified Ghana as the African country most likely to be affected by a Fed rate hike. As long as the Fed keeps rates low, Ghana has a little breathing room to try to get its affairs in order before interest rates are normalised.

cedi

The cedi has performed noticeably well against the dollar (and currencies of other trading partners) since the start of the year. This Fed announcement will at the very least not harm the cedi’s gains. This is crucial because the external debt is 43% of GDP and currency depreciation will increase our interest payments and worsen our debt to GDP ratio. Long live the Fed’s dovishness!

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Jerome Kuseh

Accountant | Economist-in-Training | Financial Analyst
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