The Ghana cedi has recently experienced a dramatic surge, leaving many to wonder if its rise has been too rapid. In a recent “Ghana Market Insight” report, released May 12, 2025, Absa, a prominent African financial institution, suggests that the cedi’s appreciation might not be sustainable. According to their analysis, the swift gains of the Ghana cedi could be followed by a correction. The report examines the underlying factors propelling the cedi’s strength, including interventions by the Bank of Ghana and the impact of rising commodity prices, while also considering the implications for Ghana’s overall economic competitiveness. Whether the Ghana cedi can maintain its current trajectory remains to be seen.

Absa’s report states that the Ghana cedi has “rallied too aggressively” in recent months, a notable shift after years of consistent depreciation. A key factor driving this appreciation is the Bank of Ghana’s (BoG) active participation in the interbank market through injections of hard currency. This increased FX support has fueled the cedi’s rise, but Absa questions the long-term viability of this strategy. Adding to the cedi’s strength are surging gold and cocoa prices, boosting Ghana’s export revenues and contributing to multi-year highs in official gross reserves. These higher reserves allow the BoG to supply more hard currency, further driving down the exchange rate.

Specifically, the cedi has appreciated by 19% in the past month, moving from 15.50/USD to 13.05/USD, as noted in the report. While Absa forecasts a partial reversal to 14.00/USD by the end of the year and an average of 14.16/USD in 2025, the current strength raises concerns. As Absa stated, “At these levels, however, we believe the cedi has rallied too aggressively.”

Several factors are currently bolstering Ghana’s reserves and, consequently, the Ghana cedi. Absa anticipates continued support from strong gold and cocoa prices, contributing to a healthy current account surplus. The rise in cocoa prices is attributed to expectations of a smaller harvest in the West African region, particularly in the Ivory Coast, due to volatile weather conditions. In Ghana, cocoa output is rebounding after a subdued crop last year thanks to more consistent rainfall. Furthermore, new gold mines (Cardinal-Namdini and Ahafo South) are expected to commence production in 2025. It is also worth noting that gold is exempt from the latest wave of US tariffs.

Heightened uncertainty in global trade has also driven investors towards safe-haven assets like gold, pushing its price to all-time highs, reaching cUSD3,300/bl in recent weeks. As a result of these factors, Absa now expects Ghana’s current account surplus to improve to 5.1% of GDP in 2025, a significant increase from 4.3% last year. This combination of factors has created a supportive environment for the Ghana cedi in the short term.

Absa’s analysis also highlights concerns about the Real Effective Exchange Rate (REER). Their framework suggests that the REER has appreciated to its most stretched level in at least a decade. Absa estimates that the REER is overvalued by 19% relative to its historical average, raising concerns about Ghana’s competitiveness in the global market.

This overvaluation implies a low degree of competitiveness for Ghana’s exports. According to Absa, to achieve purchasing power parity (PPP) again, the Ghana cedi needs to cede some gains and revert towards 14.00/USD by year-end. The bank emphasizes that the current exchange rate may not be sustainable in the long run.

While acknowledging that the Ghana cedi should perform better in 2025, strengthening from last year’s average of 14.50/USD to 14.16/USD, Absa views the current exchange rate of 13.05/USD as excessively strong. The bank anticipates a partial reversal in the cedi’s gains to maintain export competitiveness and attract financial inflows. Ultimately, the long-term health of the Ghana cedi depends on a delicate balance between maintaining its value and ensuring the competitiveness of Ghana’s economy.

Absa’s analysis indicates that the Ghana cedi’s recent rally, while welcome, may have overshot, raising concerns about competitiveness. The bank anticipates a partial correction to bring the cedi back in line with purchasing power parity. Commodity prices, particularly gold and cocoa, as well as the Bank of Ghana’s interventions, will continue to play crucial roles in the cedi’s performance in the coming months. Investors and businesses should closely monitor these developments and adjust their strategies accordingly to navigate the evolving economic landscape in Ghana.