ABSA Warns Ghana’s Cedi Rally May Reverse Amid Overvaluation Concerns

Ghana’s cedi has appreciated 19% against the US dollar in the past month, but ABSA Bank warns this surge exceeds economic fundamentals and risks correction.

The currency strengthened from GH₵15.50 to GH₵13.05, supported by gold price spikes and cocoa export earnings that boosted foreign reserves to 3.0 months of import cover.

“This appreciation appears unsustainable based on our real effective exchange rate models,” said Nikolaus Geromont, ABSA’s lead Sub-Saharan Africa analyst. The bank estimates the cedi is currently overvalued by 20% – its most stretched position in a decade – and forecasts a retreat to GH₵14.00 by year-end.

While new gold mining operations may support reserves in 2025, ABSA emphasizes the need for gradual depreciation to maintain export competitiveness. The bank projects the cedi will average GH₵14.16 next year, closer to purchasing power parity levels that balance economic stability with trade advantages.

The analysis comes as Ghana’s currency markets show unusual volatility, with the rapid cedi gains contrasting with persistent inflation and debt challenges. Economists caution that maintaining the current exchange rate could strain the country’s economic recovery efforts.