Bank of Ghana’s Forex Market Intervention in 2025: Implications for Currency Stability and Transition to Rules-Based Policy

In an unprecedented move in early 2025, the Bank of Ghana (BoG) injected approximately $1.4 billion into the foreign exchange market during the first quarter alone. This significant intervention has played a pivotal role in bolstering the Ghanaian cedi, which has appreciated from 14.7 to roughly 10.37 per U.S. dollar, making it the world’s best-performing currency to date this year. While this aggressive approach has yielded immediate gains in currency stability, the International Monetary Fund (IMF) now calls for a strategic policy shift toward a more transparent, rules-based intervention framework to ensure sustainable macroeconomic stability amid commodity price volatility.

The Scale and Impact of Bank of Ghana’s Forex Intervention

The BoG’s intervention in Q1 2025 represents a sharp escalation compared to previous years. According to the IMF’s recent review, the central bank sold $1.4 billion to support the cedi, a figure that, if sustained, could reach $5.6 billion by year-end—nearly double the total intervention in 2024.

This sizable forex sale has materially contributed to the cedi’s strong appreciation, supporting import cover and shielding inflationary pressures that often accompany currency depreciation. Such interventions have underpinned investor confidence and helped stabilize Ghana’s external accounts during a period of heightened global uncertainty and fluctuating commodity prices.

Macroeconomic Drivers Supporting the Intervention

The BoG’s large-scale intervention is bolstered by a favorable macroeconomic environment characterized by several key inflows:

• Elevated Gold Prices: Ghana’s status as a leading gold producer means higher global gold prices translate directly into increased foreign exchange earnings.

• Gold Purchase Program: The government’s domestic gold purchasing initiatives have augmented forex inflows by formalizing and expanding the gold export pipeline.

• Remittance Flows: Improved remittances from the Ghanaian diaspora have strengthened forex reserves.

• Cocoa Export Earnings: Stronger prices and volumes in cocoa exports have added to forex availability.

These factors collectively lifted Ghana’s gross international reserves to $10.6 billion by mid-2025, sufficient to cover approximately 4.7 months of imports, providing a timely buffer against external shocks.

IMF’s Recommendations: Toward a Rules-Based Intervention Policy

Despite the short-term successes, the IMF has urged the Bank of Ghana to curtail its discretionary interventions. The Fund emphasizes that sustained reliance on large-scale market sales risks depleting reserves and creating uncertainty in foreign exchange markets.

The IMF advocates for a formal internal intervention framework characterized by:

• Transparency: Clear communication of intervention policies and thresholds to market participants.

• Predictability: Predefined rules guiding intervention timing and magnitude to anchor market expectations.

• Reduced Discretion: Minimizing ad hoc interventions to avoid market distortions and enhance credibility.

Such a transition aims to improve market efficiency, reduce speculation, and foster long-term currency stability by aligning interventions with objective economic indicators rather than reactive measures.

Risks and Challenges Facing Ghana’s Forex Strategy

The current approach, heavily dependent on commodity-related inflows, exposes the Ghanaian cedi to significant vulnerabilities:

• Commodity Price Fluctuations: A downturn in global gold or cocoa prices could drastically reduce forex inflows, pressuring the currency and reserves.

• External Shocks: Geopolitical tensions, global economic slowdowns, or financial market disruptions could undermine reserve adequacy.

• Fiscal and Monetary Discipline: Any fiscal slippage or monetary policy misalignment may exacerbate depreciation risks despite central bank support.

• Reserve Sustainability: Excessive intervention without a strategic framework could erode reserves, limiting future policy flexibility.

Addressing these risks necessitates prudent macroeconomic management and a robust forex policy framework.

Strategic Outlook: Sustaining Stability with Policy Evolution

In the near term, the BoG’s interventions remain sustainable given the current reserve levels and inflow pipeline, particularly if gold prices remain elevated. However, the longer-term outlook depends on the bank’s ability to:

• Implement a Transparent, Rules-Based Framework: Clear policies will enhance market confidence and reduce volatility.

• Diversify Export Revenues: Expanding beyond commodity dependence to include manufacturing, services, and technology exports can reduce external vulnerabilities.

• Deepen Domestic Capital Markets: Strengthening financial markets, including bond and equity markets, will improve domestic resource mobilization and reduce external pressure.

• Enhance Fiscal and Monetary Coordination: Aligning policies to support macroeconomic stability will reinforce forex market resilience.

These strategic shifts will help Ghana transition from reactive forex management toward a sustainable, market-friendly approach.

Conclusion

The Bank of Ghana’s aggressive $1.4 billion forex market intervention in the first quarter of 2025 has delivered significant currency stabilization benefits, propelling the cedi to be the world’s best-performing currency this year. This success, however, is not without risks. The IMF’s call for a reduction in discretionary intervention and the adoption of a rules-based forex policy framework reflects the need for sustainable macroeconomic management in an environment marked by commodity price uncertainty and global financial volatility.

By embracing transparency, predictability, and structural reforms, the Bank of Ghana can safeguard currency stability, preserve reserves, and foster investor confidence over the long term—crucial prerequisites for Ghana’s continued economic growth and resilience.

References:

• Bank of Ghana’s forex intervention details: MyJoyOnline
• IMF’s recommendations to Bank of Ghana: MyJoyOnline

Published: July 15, 2025
Keywords: Bank of Ghana, forex intervention, Ghanaian cedi, currency stability, IMF recommendations, commodity risk, foreign exchange reserves, rules-based policy, macroeconomic stability, gold prices