Dr Theo Acheampong explains why the cedi’s recent appreciation is not solely due to external factors

Economist and Risk Analyst Dr. Theo Acheampong explains the cedi's recent appreciation. He states that it is not only due to external factors.

In a Facebook post, he discusses various reasons for this change. Dr. Acheampong is the vice president of ImaniAfrica, a policy think tank. He highlights fiscal and monetary measures that support the cedi's competitiveness.

Why the Cedi’s Recent Appreciation Is Not Solely Due to External Factors

1. The U.S. Dollar Index (DXY) measures the dollar's value against six major currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc. The index rises when the dollar strengthens and falls when it weakens.

2. Since January 2025, the DXY has declined modestly. This indicates a slight weakening of the U.S. dollar against other currencies. From Liberation Day (April 2, 2025) to now, it has decreased by 2.53 points or about -2.46%. This reflects economic uncertainty during tariff wars.

3. In contrast, the Ghana cedi has strengthened against the U.S. dollar by about 10% year-to-date. It appreciated by 17.57% from April 2 to May 9, 2025. On April 2, it traded at GHS15.46 and at GHS13.15 on May 9.

4. The cedi's clear appreciation shows local economic factors are largely responsible for its rise—independent of U.S dollar performance.

Fiscal Measures:

a) In March 2025, Finance Minister Cassiel Ato Forson presented significant spending cuts in the budget for that year.

b) Ghana reached an agreement with the IMF on April 15 for financial support related to its $3 billion Extended Credit Facility program.

c) Investors showed positive sentiment towards Ghana’s improving revenue collection and spending control during a high-level meeting in Washington D.C.

d) Ghana’s consumer inflation rate fell to 21.2% year-on-year in April from 22.4% in March due to moderating prices and a stronger cedi.

Monetary Measures:

a) The central bank may have intervened in the forex market by selling gold and forex reserves to support the cedi's inflows.

The Bank of Ghana’s gold reserves were valued at approximately GH₵46.3 billion (USD 3.6 billion) at end-April 2025.

The central bank can defend the currency as needed against speculative activity while continuing to build reserves effectively.

For those interested in deeper analysis over past years: local economic factors significantly influence market participants' perceptions of currency volatility.