The Ghanaian cedi has enjoyed a remarkable rally over the past month, appreciating by nearly 19% from GHS 15.50/USD to GHS 13.05/USD.

While this surge has been celebrated in some circles, Absa Bank has issued a cautionary note: the current strength of the cedi may not be sustainable. In its latest analysis, the bank projects a partial reversal in the local currency’s gains by the end of 2025, citing a range of economic indicators and macroeconomic dynamics.

According to Absa Bank, the cedi’s recent appreciation has been driven by a combination of buoyant market sentiment and strong foreign exchange (FX) support from the Bank of Ghana (BoG). The central bank has significantly ramped up its FX auctions on the back of improved official reserves, made possible by higher export receipts from both gold and cocoa.

Gold prices have surged globally, reaching all-time highs of approximately USD 3,300 per ounce, while cocoa prices remain elevated due to expectations of lower harvests across West Africa. Ghana’s cocoa sector, in particular, has shown signs of recovery following last year’s subdued output, thanks to more consistent rainfall. Meanwhile, the BoG’s strategy of accumulating gold rather than fiat currency has also fortified reserves.

The establishment of the Ghana Gold Board (GoldBod) has further enhanced the government’s ability to regulate gold trade and channel receipts into official reserves. Consequently, Ghana’s net reserves now stand at the equivalent of 3.0 months of imports—up from 1.8 months a year ago—according to the latest Summary of Economic and Financial Data.

Why the Rally May Be Overdone

Despite these positive developments, Absa Bank warns that the cedi’s appreciation has gone too far, too fast. The bank’s research indicates that the Real Effective Exchange Rate (REER)—which adjusts for inflation differentials and trade competitiveness—has reached its most stretched level in at least a decade. It estimates that the cedi is currently overvalued by 19% compared to its historical average.

This overvaluation implies that Ghanaian exports could become less competitive on the global market, undermining one of the core benefits of a weaker currency. “At these levels, the cedi has rallied too aggressively,” Absa noted, projecting a moderate depreciation towards GHS 14.00/USD by the end of 2025. Such an adjustment would restore purchasing power parity (PPP) and help maintain Ghana’s export competitiveness.

While Absa foresees a partial reversal in the short term, the broader outlook for the cedi in 2025 remains generally positive. The bank expects Ghana to benefit from a stronger current account surplus, driven by sustained high prices for gold and cocoa. It forecasts the current account surplus will rise to 5.1% of GDP in 2025, up from 4.3% in the previous year.

Gold output is also expected to increase significantly with the coming online of new mines such as Cardinal-Namdini and Ahafo South. Additionally, gold has remained exempt from recent U.S. tariffs, boosting its appeal as a safe-haven asset amid growing global trade uncertainties.

Taking all these factors into account, Absa projects that the cedi will average GHS 14.16/USD in 2025, an improvement from the 2024 average of GHS 14.50/USD. However, it emphasizes that the current rate of GHS 13.05/USD is unlikely to hold, given the imbalance it creates in the REER framework.

A Balancing Act for Policymakers

Absa’s forecast underscores the delicate balancing act facing Ghanaian policymakers. On one hand, a stronger cedi helps ease inflationary pressures, reduces import costs, and improves public confidence. On the other hand, if the currency appreciates too much, it could harm export competitiveness and slow the accumulation of foreign exchange reserves.

The BoG’s proactive measures—especially its intervention in the FX market and strategic reserve buildup—have been instrumental in the cedi’s recent performance. However, sustaining the rally would require equally strong fundamentals, including diversified exports, steady capital inflows, and prudent fiscal management.

The sharp rally of the cedi reflects improved investor sentiment and effective central bank interventions. Yet, as Absa Bank warns, the current strength may not be entirely sustainable. A partial correction appears likely, especially if the Real Effective Exchange Rate remains stretched and exports begin to feel the pinch.

Going forward, the cedi is expected to settle at a more balanced level that aligns with long-term purchasing power parity. While the fundamentals for 2025 appear strong—bolstered by rising gold and cocoa receipts, new mining activities, and a healthier current account—the Bank of Ghana will need to stay vigilant to prevent excessive volatility and maintain macroeconomic stability.