Cedi’s rally overshoots fundamentals — ABSA warns of imminent correction

Ghana’s cedi has surged 19% in the past month. It rose from GHS 15.50 to GHS 13.05 per US dollar. This is one of its steepest rallies in recent years.

However, ABSA Bank's latest report warns this rally may not last. They attribute the cedi's strength to rising gold prices and high cocoa earnings. Improved foreign reserves now cover 3.0 months of imports, up from 1.8 months last year.

This boost comes from geopolitical gold demand and stable cocoa output amid regional supply concerns. These factors have helped stabilize the cedi.

Despite this, ABSA cautions that the rally has overshot fundamentals. The cedi is now overvalued by nearly 20%, according to real effective exchange rate models. This is the most stretched it has been in over a decade.

Analyst Nikolaus Geromont predicts a pullback is likely. He projects a correction to GHS 14.00/USD by year-end.

Gold mines like Cardinal-Namdini and Ahafo South may bolster reserves in 2025. However, ABSA says gradual depreciation is necessary for export competitiveness. This will help avoid jeopardizing recent economic stability.

The cedi is projected to average GHS 14.16/USD in 2025. This is slightly stronger than the average for 2024 but aligns better with purchasing power parity.