Analysis: Why the cedi is depreciating

The Ghana cedi has been on a sustained depreciation path since late March 2026 following the escalation of the US–Israel–Iran conflict in the Middle East.

For many Ghanaians, especially after the cedi’s remarkable performance in 2025, the recent weakening has raised concerns about whether the currency is coming under renewed pressure and whether there is cause for alarm.

The recent depreciation feels unusual largely because the cedi is coming off one of its strongest performances in modern Ghanaian history.

In 2025, the cedi appreciated by about 40.7% against the US dollar after decades of almost continuous annual depreciation.

The currency started 2025 trading around GH¢14.7 to the dollar and ended the year near GH¢10.4.

After such an extraordinary appreciation, it is easy to forget that currencies are still expected to move. In reality, maintaining a completely stable exchange rate after such a sharp gain would have been difficult.

In fact, President Mahama indicated during engagements with the business community in 2025 that a gradual annual depreciation of around 5% would be considered acceptable if it supports stability and competitiveness.

A 5% depreciation from the cedi’s end-2025 level would place the currency somewhere around GH¢11 to the dollar by the end of 2026, which remains far stronger than where the currency traded before its 2025 rally.

Importantly, many of the major factors that supported the cedi’s appreciation in 2025 still broadly remain in place.

Gold prices are still elevated, fiscal policy has remained relatively disciplined and Ghana continues to benefit from strong gold export earnings.

The creation of GoldBod also changed the foreign exchange dynamics of the market by centralizing much of Ghana’s gold export proceeds and channeling those inflows toward the Bank of Ghana through a relatively inefficient structure.

However, the current pressures on the cedi appear to stem from a combination of rising dollar demand and some temporary disruptions to dollar inflows.

The biggest pressure point currently is energy imports.

The ongoing Middle East conflict has pushed global oil prices sharply higher, with crude prices rising from around $60–70 per barrel before the conflict to periods above $100 per barrel.

Because Ghana imports most of its refined petroleum products, the higher oil prices have significantly increased the country’s monthly fuel import bill.

Recent industry estimates suggest Ghana’s monthly petroleum import requirements have risen to roughly US$500 million, up from around US$400 million during the same period in 2025.

That alone substantially increases demand for dollars.

At the same time, another seasonal pressure is also emerging.

Following the release of many companies’ 2025 financial statements, foreign-owned firms have been repatriating dividends to parent companies abroad.

Those transactions require dollars because no company in South Africa, the UK or elsewhere will accept cedis as dividend payments. That again increases pressure on the foreign exchange market.

In addition, many businesses typically restock inventories around the middle of the year, creating another layer of dollar demand for imports.

Together, these factors point to a period of elevated demand for foreign exchange.

Normally, such pressure becomes problematic only if dollar supply weakens significantly.

There are indications that parts of Ghana’s foreign exchange inflows may have faced temporary disruptions during the early stages of the Middle East conflict.

Ghana sells the overwhelming majority of its small-scale sector gold through GoldBod to markets such as Dubai and India.

Following the escalation of the conflict, parts of Middle Eastern airspace were temporarily disrupted, affecting trade routes and logistics.

GoldBod’s Chief Executive Officer, Sammy Gyamfi, publicly confirmed at the time that the agency had temporarily halted some gold exports, describing it as a management decision amid market uncertainty.

At the same time, Reuters reported that GoldBod was exploring increased gold sales to India. However, India itself has recently taken steps to manage gold imports as part of efforts to support the rupee and manage external balances.

These developments may have slowed portions of Ghana’s foreign exchange inflows at a time when dollar demand was rising sharply.

Still, from the Bank of Ghana’s perspective, overall foreign exchange conditions remain relatively strong.

The Governor of the Bank of Ghana, Johnson Pandit Asiama, has repeatedly maintained that dollar supply remains robust.

Ghana’s gross international reserves currently stand around US$14 billion and continue to improve.

The issue therefore may not necessarily be the absence of dollars in the system, but rather the Bank of Ghana’s decision not to aggressively increase its interventions in the market.

One important factor is that the central bank is currently operating under a revised foreign exchange intermediation framework developed with the IMF in late 2025.

That framework appears designed to reduce excessive intervention and allow the exchange rate to adjust more freely, provided movements remain orderly.

As Ghana transitions from the IMF Extended Credit Facility programme toward a Policy Coordination Instrument arrangement, maintaining policy credibility has become increasingly important.

Heavy intervention to artificially defend the cedi could send the wrong signal to investors and international markets, especially at a time when Ghana is attempting to demonstrate stronger macroeconomic discipline after years of economic instability.

This may partly explain why the Bank of Ghana has so far resisted significantly increasing dollar supply through its forex auctions despite rising market demand.

As Governor Asiama recently noted, “the cedi is expected to move. It can depreciate or appreciate. Our concern is to avoid excessive volatility.”

That distinction is important.

The Bank of Ghana does not appear focused on defending a fixed exchange rate. Rather, its objective appears centered on preventing disorderly market conditions and sharp speculative swings.

The cedi’s recent depreciation therefore reflects a mix of higher oil-related dollar demand, seasonal dividend repatriation pressures, temporary disruptions to parts of Ghana’s gold export flows and the Bank of Ghana’s cautious approach toward intervention.

After the cedi’s extraordinary appreciation in 2025, some degree of correction or weakening in 2026 was always likely.

For now, however, the available evidence suggests the situation remains manageable.

Dollar reserves remain relatively strong, Ghana’s key export commodities continue to perform well and the Bank of Ghana still retains substantial capacity to intervene if market conditions become excessively volatile.

At this stage, the recent depreciation appears more like a controlled adjustment to shifting global conditions than the start of a broader currency crisis.

المصدر: MyJoyOnline (GH)