No Magic, Just Macro: How the Cedi Got Its Groove Back
- Cedi Appreciation Not a Fluke, Says Bank of Ghana Governor
The recent appreciation of the Ghanaian cedi is not a temporary response to IMF disbursement promises, but rather the result of deeper structural and policy dynamics, according to Dr. Johnson Asiama, Governor of the Bank of Ghana.
In an interview with NorvanReports during the IMF and World Bank Spring Meetings, Dr. Asiama rejected claims that the central bank is artificially defending the currency, stating that the appreciation is being driven by strong fundamentals and anchored expectations, underpinned by reforms to Ghana’s foreign exchange (FX) management framework.
“What we are seeing is not because we are intervening,” the Governor said. “We are not losing reserves. What is rather causing the appreciation is a broad-based improvement: strong gold and remittance inflows, a resilient external sector, and confidence from the recent IMF staff-level agreement.”
Ghana’s gross international reserves have grown steadily in recent months, now exceeding program benchmarks. The appreciation of the cedi in the FX market, often a politically sensitive metric, has spurred debate among analysts and business leaders, many of whom are wary of both speculative bubbles and potential central bank overreach.
Dr. Asiama was unequivocal in pushing back against this narrative.
“The cedi is an endogenous variable,” he noted. “It responds to the broader dynamics in the economy. When agents observe fundamental shifts, like improved inflows or better fiscal discipline, they respond accordingly. This is what is happening.”
Forex Market Reforms in Focus
Beyond market fundamentals, the central bank is also deploying new tools to deepen liquidity and improve price discovery in the forex market. Dr. Asiama revealed that the Bank has introduced two-day and seven-day FX option instruments as part of a broader reform of Ghana’s forex market structure.
These instruments are designed to enhance transparency and reduce pressure on the spot market, ensuring that the central bank does not have to lean on its reserves in the short term.
“All we are doing is helping the market work more efficiently. We’re not injecting reserves to defend the cedi artificially. The forex liquidity we are using is already in the system,” he explained.
The policy shift comes amid renewed calls for greater central bank independence and professionalism, particularly in managing expectations and curbing excessive currency volatility, a factor that has historically undermined investor confidence.
Dr. Asiama acknowledged that both extreme depreciation and excessive appreciation can destabilise the economy, warning that the Bank will intervene only if needed to correct misalignments.
“Excessive volatility, in either direction, is not good for business. If the appreciation becomes too strong, we know what to do. If depreciation spirals, we also know what to do. Our job is to avoid real misalignments in the cedi,” he said.
Anchoring Expectations, Managing Confidence
The tone from the central bank under Dr. Asiama reflects a careful balancing act: on one hand, celebrating improvements in market sentiment and reserve buffers; on the other, guarding against premature declarations of victory.
“Let me say clearly—what we’re seeing is part of the normal dynamics of a well-managed economy. There is no need for alarm, but there is also no room for complacency. We have our eyes on the ball,” said the Governor
The message is clear: Ghana’s exchange rate stability is not a mirage; it is hard-won, underpinned by macroeconomic discipline, reserve accumulation, improved FX market infrastructure, and a dose of renewed public confidence.
