Ghana’s cedi appreciation: Causes, consequences, and policy imperatives – Nsemkeka
Introduction: The Paradox of Currency Strength
Ghana’s economic landscape in 2025 presents a striking paradox. The cedi has emerged as one of the world’s best-performing currencies, appreciating by approximately 16% against the US dollar and contributing to a decline in inflation to 21.2% by April 2025.
This remarkable turnaround follows a turbulent 2024 when the currency depreciated by nearly 24%, fueling economic instability and eroding purchasing power.
Yet, despite these positive macroeconomic indicators, ordinary Ghanaians continue to grapple with persistently high prices for goods and services.
This phenomenon is not without historical precedent. Ghana’s economic history reveals several instances where currency appreciation failed to translate into immediate consumer benefits.
Understanding both the current drivers of the cedi’s strength and these historical parallels provides crucial insights for policymakers seeking to convert macroeconomic gains into tangible improvements in citizens’ lives.
The Drivers of Cedi Appreciation
The cedi’s resurgence stems from a confluence of domestic policy reforms and favorable global economic conditions.
Domestically, the Bank of Ghana’s Gold4Oil and now GoldBod initiative has been instrumental, increasing gold reserves by 40.6% from May 2024 to April 2025.
This strategic accumulation has not only strengthened Ghana’s foreign exchange buffer but also boosted investor confidence and reduced speculative pressures on the currency.
The program’s requirement that 20% of gold export proceeds be converted into cedis before dollar exchange has further stabilized forex supply.
Concurrent fiscal reforms under Ghana’s IMF program have significantly contributed to the currency’s recovery.
The government’s elimination of distortionary taxes like the E-levy, the intent to abolish the COVID-19 levy, combined with prudent expenditure cuts, has enhanced fiscal credibility.
The $3 billion Extended Credit Facility from the IMF has restored economic confidence, with an anticipated $370 million tranche expected soon.
These measures have been validated by S&P Global Ratings’ upgrade of Ghana’s credit status from Selective Default to CCC+.
The temporary suspension of external debt repayments through Ghana’s ongoing restructuring program has provided crucial breathing room, with the next major payment due in July 2025.
This respite has alleviated pressure on foreign exchange reserves, enabling the cedi to stabilize. The Bank of Ghana’s direct market interventions, including a $490 million forex injection in April 2025, have further supported the currency’s appreciation.
Global economic shifts have complemented these domestic efforts. The US dollar’s weakening due to trade tensions and recession concerns has indirectly benefited emerging market currencies like the cedi, with the DXY index falling approximately 10% since January 2025.
Simultaneously, record prices for Ghana’s key exports—gold reaching $3,400 per ounce and cocoa hitting $10,000 per ton—have significantly boosted foreign exchange inflows.
The formalization of small-scale mining operations has augmented these gains by increasing legally exported gold volumes.
The Persistent Challenge of Price Stickiness
Despite these favorable currency movements, consumer prices remain stubbornly high due to several structural and behavioral factors. Price stickiness—the economic phenomenon where prices adjust more readily upward than downward—plays a significant role. Businesses, uncertain about the sustainability of the cedi’s strength, hesitate to reduce prices.
Many operate under long-term contracts for rent, utilities, and wages negotiated during higher inflation periods, complicating immediate price reductions.
Domestic cost structures continue to exert upward pressure on prices. While a stronger cedi reduces imported input costs, expenses like transportation, electricity, and labor remain elevated.
Recent utility tariff hikes and persistently high fuel prices, influenced by global oil markets, maintain cost pressures that limit businesses’ ability to lower consumer prices.
Inventory cycles create additional lags. Many traders continue selling goods purchased when the cedi was weaker, meaning the benefits of currency appreciation will only manifest as new stock arrives.
For import-dependent sectors like electronics and pharmaceuticals, this adjustment may take three to six months.
Market dynamics further complicate the picture. Unlike swift price increases during depreciation, downward adjustments face weaker competitive and regulatory pressures.
While the Ghana Union of Traders encourages price reductions, voluntary compliance allows some businesses to maintain higher margins.
Moreover, global commodity prices for essentials like rice, wheat, and fuel remain elevated due to supply chain disruptions and geopolitical tensions, keeping local prices high despite currency gains.
Historical Parallels and Policy Lessons
Ghana’s economic history offers several instructive parallels to the current situation. The 2017 cedi recovery following the IMF bailout and oil production commencement saw similar patterns—while inflation dropped from 15.4% to 11.8%, consumer prices remained elevated due to structural bottlenecks. The 2007 cedi redenomination provided temporary stability but ultimately failed without deeper reforms, leading to renewed depreciation by 2014.
These historical episodes yield crucial policy lessons. First, temporary fixes like forex interventions or redenomination cannot substitute for sustained structural reforms.
Second, domestic cost pressures require direct attention, as currency appreciation alone cannot offset local inflationary drivers.
Third, active cultivation of market competition is essential to ensure businesses pass forex gains to consumers.
Fourth, economic diversification beyond commodities is critical for long-term stability.
Finally, managing public expectations through transparent communication helps maintain confidence during transitional periods.
Consumer Expectations and Policy Recommendations
In the short term (three to six months), consumers may see gradual price declines in import-heavy sectors like electronics and vehicles as new stock arrives.
However, staple food prices will likely remain elevated due to global supply constraints. Over the medium term (six to twelve months), sustained cedi strength should lead to broader price adjustments, though careful management of potential interest rate cuts will be crucial to avoid reigniting inflation.
For lasting stability, comprehensive structural reforms are essential. These include:
- Maintaining fiscal discipline through continued IMF program implementation
- Addressing domestic cost pressures via energy sector improvements and transport infrastructure development
- Strengthening market competition through appropriate regulatory frameworks
- Diversifying Ghana’s economic base beyond commodity exports
- Enhancing price transparency mechanisms and local production capacity
Conclusion: From Temporary Recovery to Sustainable Stability
Ghana’s current economic position presents both opportunities and risks. While the cedi’s appreciation creates favorable conditions for reform implementation, history shows these gains may prove temporary without decisive action.
By learning from past experiences and implementing comprehensive structural reforms, Ghana can work toward an economic future where currency stability translates into tangible improvements in citizens’ lives.
The path forward requires not just maintaining current policies but building upon them to create a more diversified, competitive, and resilient economy capable of delivering sustained prosperity.