The local cedi has staged one of its sharpest rallies in recent years, appreciating nearly 19% in just a month to trade around 13.05 to the US dollar.
This rebound according to ABSA Bank Research comes on the back of surging gold prices, elevated cocoa values and a significant recovery in the country’s foreign reserves – which have risen to a multi-year high.
The Report reveals that the currency’s rally has outpaced fundamentals, leaving the cedi overvalued by nearly 20% on a real effective exchange rate basis.
In the Bank’s latest “Ghana Market Insight” report released on May 12, ABSA warned that the cedi — which surged nearly 19% in a single month from GHS 15.50 to GHS 13.05 per US dollar is now overvalued by as much as 19% based on real effective exchange rate (REER) models.
Absa forecasts a correction to around 14.00/USD by year-end, helping to realign the exchange rate with purchasing power parity.
“We believe the cedi has rallied too aggressively. To restore competitiveness and purchasing power parity, the exchange rate is likely to reverse towards GHS 14.00/USD by year-end,” Absa’s lead analyst for Sub-Saharan Africa, Nikolaus Geromont stated.
The report further notes that cedi’s appreciation has been underpinned by a spike in export revenues from gold and cocoa.
Gold prices have soared to over $3,300 per ounce — a record high driven by geopolitical tensions and investor flight to safe-haven assets.
Cocoa prices remain elevated due to expected poor harvests in Ivory Coast, while Ghana’s more stable weather has boosted local output.
These developments have boosted Ghana’s foreign exchange reserves, which now cover 3.0 months of imports, up from 1.8 months a year ago due to the Bank of Ghana’s aggressive accumulation of gold over fiat currency, and the newly created Ghana Gold Board that is streamlining export flows into official coffers.
“Our models show the REER is now at its most stretched level in over a decade,” the report noted, warning that Ghana’s export competitiveness is at risk unless the currency realigns to reflect broader economic realities.
Absa however projects that the cedi will weaken slightly in the coming quarters, ending 2025 at around GHS 14.19/USD, and averaging GHS 14.16/USD for the year.
While this would still represent an improvement over the 2024 average of GHS 14.50/USD, the bank cautions that current market euphoria may not be sustainable.
Looking forward, additional support is expected from new gold mines (including Cardinal-Namdini and Ahafo South) coming online in 2025, which will likely reinforce reserves and inflows.
“A gradual correction in the currency is needed to avoid undermining the fragile gains made in stabilising the economy,” the report added.