Ghana’s sharp disinflation and rare cedi appreciation in 2025 were not the result of chance, commodity luck or one-off foreign exchange injections, but of deliberate and forceful monetary tightening by the Bank of Ghana, according to economist Dennis Nsafoah.
In a policy analysis of Ghana’s post-crisis rebound, Nsafoah, an Associate Professor of Economics at Niagara University in New York, argues that domestic monetary policy decisions were the dominant force behind the turnaround in inflation and currency stability, challenging narratives that attribute the gains mainly to external factors or temporary central bank intervention.
Inflation fell steadily through 2025 while the cedi reversed years of depreciation to record one of its strongest performances in recent history. Although high gold prices, improved terms of trade and a softer global monetary environment provided support, Nsafoah contends that the decisive factor was the Bank of Ghana’s sustained contraction of liquidity in the domestic financial system.
Data from the period show a sharp slowdown in broad money growth and a significant reduction in commercial banks’ reserves held at the central bank. As cedi liquidity was withdrawn, pressure on the foreign exchange market eased, allowing the currency to strengthen from about 15.8 to the dollar early in the year to around 10.8 by May.
“The exchange rate and inflation are not accidents,” Nsafoah writes. “They are outcomes of policy choices.”
From a theoretical perspective, the rebound fits squarely within orthodox macroeconomic models. In the short run, tighter monetary conditions influence interest rates, portfolio allocation and capital flows. Over the longer term, lower money supply growth reduces inflation differentials, supporting currency appreciation under purchasing power parity.
With U.S. inflation broadly stable, Ghana’s rapid disinflation narrowed that gap, reinforcing the cedi’s gains. External tailwinds helped, but the underlying adjustment was domestic.
The analysis also pushes back against criticism that the central bank’s reported sale of up to $10 billion to support the cedi was wasteful or unsustainable. According to Nsafoah, such criticism misunderstands the mechanics of exchange rate intervention.
Where interventions are sterilized with liquidity later re-injected exchange rate effects tend to fade. In Ghana’s case, however, the Bank of Ghana allowed the liquidity squeeze to persist, making the intervention unsterilized and therefore more durable. The contraction in bank reserves following FX sales suggests the central bank resisted pressure to loosen conditions prematurely.
That distinction matters for investors and policymakers alike. Persistent exchange rate stability lowers risk premiums, improves pricing certainty and creates space for fiscal consolidation and structural reform outcomes that Ghana struggled to achieve during earlier cycles of inflation and currency volatility.
The real risk, Nsafoah warns, lies not in external shocks or market speculation, but in a reversal of monetary discipline. A renewed surge in bank reserves at the central bank similar to the 50 percent to triple-digit growth rates seen in past episodes would likely reignite excess demand for foreign currency and trigger another bout of sharp depreciation.
For now, the lesson of 2025 is clear: Ghana’s central bank has demonstrated that it retains the tools and capacity to stabilize prices and the currency when it chooses to use them decisively. Sustaining that credibility, Nsafoah argues, will depend on whether monetary discipline outlasts the immediate recovery.
In Ghana’s long-running battle with inflation and exchange rate instability, 2025 may mark less a turning point than a test of policy resolve, institutional independence and the willingness to let tight money do its work.
