• Charts show risk of double-digit drop for cedi in six months
  • Rising fuel costs pushed producer inflation to seven-year high

Ghana’s currency is trading near a record low and a long-term momentum indicator shows it’s at risk of further depreciation.

The cedi has lost 18% against the dollar this year, making it the worst-performing currency in Africa after Zimbabwe’s dollar. A 28-year analysis of the so-called Relative Strength Index, or RSI — a measure of the rate of change in prices —  shows the pain may be far from over. 

Last month, the RSI rose to over 90, significantly above the 70 level that is considered an overbought threshold. In the past, whenever the measure has topped 90, the cedi has dropped as much as 24% on an average over the next six months. That’s bad news for an economy battling the highest inflation rate in more than 12 years and worsening business sentiment because of rising fuel prices.

A depreciating currency will add to the import bill of the West African nation that purchases most of its fuel from overseas. Annual producer inflation accelerated at the fastest pace in seven years in March to 29.3%, stoked by increases in energy, food and beverage prices, partly due to the cedi’s decline.

Credit: bloomberg

(by Akshay Chinchalkar)