Absa: Ghana cedi rallied too far

Absa, a leading bank in Africa, has made a statement about the Ghana cedi. They believe the cedi has “rallied too far.” This statement was released on May 12, 2025.

The Bank of Ghana recently injected more hard currency into the interbank market. This action contributed to the cedi's strong performance. However, Absa thinks the local currency has rallied too aggressively in recent months.

Ghana's export receipts have increased due to rising gold and cocoa prices. These gains have helped recover Ghana’s official gross reserves to a multi-year high. As a result, the Bank of Ghana supplied more hard currency, lowering the exchange rate from 15.50/USD to 13.05/USD.

Despite this drop, Absa expects a partial reversal of the cedi's value. They predict it will move towards 14.00/USD by year-end. This adjustment would help maintain purchasing power parity and keep exports competitive.

Absa also forecasts that the GHS will average 14.16/USD in 2025. The cedi has appreciated sharply over recent weeks, rallying by 19% from its previous rate of 15.50/USD.

This rally is attributed to increased market confidence and support from the Bank of Ghana (BoG). The BoG has conducted more foreign exchange auctions as its official reserves grow.

According to recent data, Ghana’s net reserves have risen significantly over the past year. They now cover 3 months of imports compared to just 1.8 months last year.

This growth is partly due to BoG accumulating gold instead of fiat currency. Additionally, with the establishment of the Ghana Gold Board (GoldBod), gold trade is better controlled.

Looking ahead, export receipts are expected to benefit from strong gold and cocoa prices. Cocoa prices have risen amid expectations of smaller harvests in West Africa.

In particular, output from Ivory Coast may decline due to weather issues. In contrast, rainfall levels in Ghana have improved production after last year's low output.

Furthermore, new mines like Cardinal-Namdini and Ahafo South are set to begin production in 2025. Gold is also exempt from recent US tariffs, making it more attractive during global trade uncertainty.

As a result of these factors, Absa expects Ghana’s current account surplus to improve in 2025. They project it will rise to 5.1% of GDP from last year's figure of 4.3%.

Given these anticipated inflows, Absa believes the cedi should perform better next year. They forecast an average exchange rate improvement from last year's rate of 14.50/USD to around 14.16/USD in 2025.

However, they caution that the current exchange rate at 13.05/USD appears too strong right now. Their analysis indicates that the Real Effective Exchange Rate (REER) is overvalued by about 19%.

To restore competitiveness and achieve purchasing power parity again, they suggest that the cedi needs some adjustments towards approximately 14.00/USD by year-end.