Cedi’s 41% gain was mean reversion, not overvaluation – BoG

The Bank of Ghana has justified that the 41 percent appreciation of the cedi in 2025 was mean reversion and not overvaluation.

The substantial appreciation was legitimate and a correction rather than an overvaluation.

Gershon Kudjo Agbledzorwu, Bank of Ghana ‘s Head of the Financial Markets Department stated on TV3’s Key Point that “The appreciation of about 41% in 2025 was a correction, not overvaluation. The cedi lost about 77% between 2022 and 2024, the correction was needed.”

He indicated that international institutions affirmed that the appreciation in 2025 was mean reversion.

Between 2022 and 2024, the Ghana cedi depreciated cumulatively by approximately 77 percent against the US dollar. This sharp decline underpinned Ghana’s sovereign debt default, the suspension of Eurobond market access, and the country’s entry into an IMF supported programme. Against this backdrop of severe and prolonged currency weakness, the cedi’s subsequent recovery in 2025; though large in percentage terms, represents unwinding of prior overshooting rather than a departure from fundamentals.

Mean reversion is the tendency of an asset price that has deviated sharply from its long run equilibrium to return toward that equilibrium over time. This is well established concept in exchange rate in economics. Agbledzorwu noted that the IMF has confirmed the cedi’s appreciation in 2025 is consistent with mean reversion dynamics.

For the DGPP, the cedi’s appreciation is a double‑edged development. On the reserve‑accumulation side, a stronger cedi lowers the cedi‑denominated cost of purchasing gold from local miners. On the accounting side, however, it widened the spread between the forex bureau rate and the official Bank of Ghana rate, contributing to the elevated programme cost reported in 2025. The Bank’s position is that these accounting effects are transitory and should not distort assessment of the programme’s long‑term strategic value.

The broader message from the Bank of Ghana officials on Saturday was one of credibility and market. The macroeconomic stabilization achieved 2025 is a correction to realign the fundamentals. The cedi’s recovery reflects restored market confidence and that the costs recorded in the DGPP represent the price of the adjustment.

Source: 3news.com by Laud Nartey