Monthly Economic Updates (Nigeria, Kenya, and Ghana)

Executive Summary

Key emerging markets in Africa experienced significant economic policy developments in February 2025. ACIOE’s analysis of Kenya, Ghana, and Nigeria reveals distinct approaches to managing inflation, interest rates, and currency stability amidst evolving global economic conditions. Kenya’s inflation rate rose to 3.5% in February (up from 3.3% the previous month). The central bank’s benchmark interest rate was reduced to 10.75%, which helped maintain a relatively stable shilling, with improved foreign reserves providing a solid buffer. Ghana continues its recovery, with inflation declining to 23.5% from its 54% peak in 2022 while maintaining high interest rates and rebuilding reserves under IMF support. Nigeria has achieved the notable milestone of converging its official and parallel exchange rates at around ?1,500 per USD after significant adjustments in 2024, supported by improved dollar liquidity and reduced inflation following a recent CPI rebasing. Looking ahead to March, ACIOE projects continued stability with potentially modest improvements, though each country faces unique risks that could impact their currency markets.

Kenya: FX Market Developments in February 2025 ??

Macroeconomic Indicators

Inflation: Kenya’s inflation increased to a five-month high of 3.5% in February driven by food prices, discontinuing its downward trend. Annual inflation increased by 0.2 percentage points from 3.3% in January 2025, but it is still well below the central bank’s 5% target midpoint. This marked the ninth consecutive month that inflation stayed under the 5% midpoint, as core inflation remained unchanged at 2%.

Interest Rates: With price stability achieved in 2024, the Central Bank of Kenya (CBK) shifted to an accommodative stance. On February 5, 2025, the Monetary Policy Committee cut the benchmark Central Bank Rate (CBR) to 10.75% (from 11.25% in December 2024) to spur credit growth amid slowing economic activity. Commercial interbank rates hovered around 10.5%–10.7% in February, aligning with the more accommodative policy stance.

Foreign Reserves: Kenya’s foreign exchange reserves improved markedly over the past year. Usable FX reserves were about $9.26?billion as of mid-February (approx. 4.7 months of import cover). This is a 28% increase from roughly $7.2?billion a year earlier, bolstered by IMF/World Bank disbursements and reduced external debt service. Reserves remained above the statutory minimum (4 months of import cover) for the last six months, providing a buffer to stabilize the shilling.

Exchange Rate Movements (USD/KSH)

The Kenyan shilling (KSh) was relatively stable against the U.S. dollar in February 2025. It traded in the KSh 128.5–129.5 per USD range for most of the month. In late January, the shilling was at KSh 129.00–129.50 per USD and remained flat day-to-day amid low FX demand. By mid-February, it had strengthened slightly to about KSh 128.50–129.50 per USD, supported by steady diaspora remittances and central bank intervention. Overall, the USD/KSH rate showed only marginal movement throughout the month. This stability marks a contrast to the shilling’s gradual depreciation trend in 2024, suggesting that inflows and CBK interventions in early 2025 helped offset underlying pressure. The US Dollar Index was somewhat weaker in February, which also mildly eased external pressure on the shilling.

?Policy Changes and Central Bank Interventions

Kenyan authorities actively managed monetary and FX conditions in February. The CBK’s rate cut to 10.75% was a key policy change aimed at supporting growth given tame inflation. On the foreign exchange front, the CBK intervened to smooth volatility, periodically selling U.S. dollars from reserves to meet importer demand. This direct support, alongside regulatory measures, helped prevent sharp shilling swings. The government maintained its program with the IMF and World Bank, securing external funding that boosted reserves. No new capital controls or major FX policy shifts were announced in February; rather, the focus remained on liquidity support and maintaining adequate reserves. The CBK confirmed reserves were above legal thresholds, signaling its ability to stabilize the market as needed. Kenya recently issued a $1.5bn Eurobond as part of its liability management operations; part of the proceeds from the bond will be used to finance the repurchase of its $900?million Eurobond due in 2027 and to meet its budgetary needs. Kenya faced pressure in 2024 to meet a $2?billion Eurobond payment. It was able to refinance part of this debt at a steep price. In addition to the 2027 maturity, Kenya has a $1?billion maturity falling due in 2028. These interventions and an easing bias in monetary policy were calibrated to ensure shilling stability.

Projections for March 2025

Looking ahead, the Kenyan shilling is expected to remain relatively steady in March 2025, with a mild weakening bias. Key drivers support a stable outlook: Kenya’s robust reserves and ongoing diaspora inflows should cushion the shilling, and the CBK has signaled readiness to intervene to prevent excessive volatility. Additionally, the improved trade balance and foreign funding inflows from the Eurobonds provide fundamental support. However, some downside risks could nudge the shilling weaker. The recent rate cut—and any further monetary easing—may reduce foreign portfolio inflows. Additionally, if import demand picks up (e.g., due to rising oil prices or restocking by businesses), higher dollar demand could put pressure on KES. Barring any external shocks, the shilling will likely trade in a narrow band around KSh 130/$ through March. Overall, the outlook is for a slightly softer but largely range-bound KES, with exchange rate stability aided by Kenya’s strong FX reserve position and prudent management of the currency market. Any movement in March is expected to be limited, keeping the shilling near its late-February levels absent new shocks.

Ghana: FX Market Developments in February 2025

Macroeconomic Indicators

Inflation: Ghana’s inflation remains high but has started to decelerate. In February 2025, consumer prices rose 23.1% year-on-year, easing slightly from 23.5% in January 2025. This 0.4 percentage point drop was the second decline in consecutive months, ending a streak of rising inflation. The slowdown was driven mainly by easing non-food price growth, though food inflation is still elevated (28.1% in February). While 23.1% inflation is still well above the Bank of Ghana’s 8% ±2 target band, it is less than half the peak (54% in Dec 2022) and trending downward.

?Interest Rates: The Bank of Ghana (BoG) maintained a tight monetary policy stance in the face of persistent inflation. At its late January 2025 meeting, the BoG held the policy rate at 27.00%, unchanged for the second consecutive meeting. This followed a 200-basis-point cut earlier in 2024 that brought the rate down to 27%. The hold reflects cautious optimism that inflation will continue to fall; indeed, the central bank now projects inflation will reach the 6–10% target range by Q4 2025, sooner than previously expected. Commercial lending rates in Ghana remain very high in tandem with the policy rate, helping to contain excess demand and stabilize the currency.

Foreign Reserves: Ghana’s foreign reserves position has improved under its IMF program. Gross International Reserves climbed to roughly $8.98?billion by December 2024 (about 4 months of import cover), up from $7.9?billion in November. This jump was fueled by IMF disbursements (a $600?million tranche was approved in late 2024) and strong export earnings. By early 2025, reserves have been rebuilt to the highest level in several years, providing a cushion for the cedi. The Bank of Ghana’s data showed 4.0 months of import cover as of January 2025, though some of these reserves are earmarked to meet external debt obligations. Importantly, authorities are prioritizing reserve build-up as part of restoring macro stability, which has bolstered confidence in Ghana’s external position.

?Exchange Rate Movements (USD/GHS)

The Ghanaian cedi (GHS) was relatively stable in February 2025, following significant volatility in late 2024. After a sharp depreciation in December, the cedi found footing: in January 2025, it depreciated by only ~2.4% against the USD, a marked improvement from the steep 19% drop in December 2024. By February, the exchange rate leveled out around GHS 15.5 per USD. The relative calm in USD/GHS is attributed to improved dollar liquidity and confidence from the IMF program. Robust reserve levels have allowed the central bank to meet FX market demand, and a stable USD index globally has helped as well. While the cedi’s current level (15.5) is still substantially weaker than pre-crisis (it was below 10 in early 2022), the trend in early 2025 is flat. This stability has been critical in re-anchoring inflation expectations and giving businesses relief from the wild swings experienced in 2022–2023.

Policy Changes and Government Interventions

Ghana’s authorities continued to implement measures to stabilize the FX market and the broader economy in February. The Bank of Ghana’s tight monetary policy of keeping the prime rate at 27% is a deliberate strategy to support the cedi by curbing inflation and making cedi-denominated assets attractive. This high interest rate, in effect, incentivizes investors to hold cedi and dampens speculative pressure on the currency. On the fiscal front, the new government remained engaged with the IMF, signaling a commitment to reforms. In mid-February, officials held discussions with an IMF mission on the 2025 budget and policy priorities, including exchange rate policy. By staying on track with the $3?billion IMF program, the government has unlocked external funding and technical support that indirectly stabilizes the FX market.

Dr. Johnson Asiama, who was sworn in as Governor of the Bank of Ghana on February 25, has set six key priorities for his tenure. He aims to adopt a data-driven approach to monetary policy, collaborating with government agencies to manage inflation and stabilize food prices while phasing out tiered cash reserve requirements in favor of open market operations. To enhance exchange rate stability, the BoG will introduce a new foreign exchange law, expand Ghana’s role in the Pan-African Payment and Settlement System (PAPSS), and curb speculation to strengthen FX reserves. In the banking sector, he stressed the need to address non-performing loans, improve risk management, and strengthen cybersecurity, including a review of the Banks and Specialized Deposit-Taking Institutions Act (Act 930). He also prioritized financial inclusion, focusing on expanding digital finance and mobile banking in underserved areas. Additionally, the BoG has launched investigations into remittance companies over concerns about the diversion of FX flows.

?Projections for March 2025

The outlook for Ghana’s FX market in March 2025 is guardedly optimistic, with expectations of continued cedi stability or even mild appreciation if supportive factors persist. Given the momentum of improving fundamentals, some analysts forecast the Cedi could strengthen slightly in early 2025. For example, one projection saw the cedi averaging GHS 14.8 per USD in Q1 2025, up from about GHS 15.1 in late 2024. Such an outcome assumes Ghana will stay on track with IMF reforms, unlocking further aid and bolstering confidence. Indeed, if Ghana secures the next program review and disbursement on schedule, March could bring an additional FX inflow that supports the cedi. Inflation dynamics also play a role: as inflation gradually eases, real interest rates become more positive, which could attract yield-seeking investors and prop up the currency. The BoG is likely to maintain its 27% policy rate at least through March, keeping monetary conditions tight as a stabilizing factor for the cedi. On the other hand, risks remain. The Cedi’s stability is still fragile as any delay in reform implementation or negative news on debt restructuring could sour investor sentiment and renew pressure on the currency. Additionally, the BoG might consider a rate cut in the coming months if disinflation continues, which markets could interpret in advance and reduce the Cedi’s appeal.

Nigeria’s FX Market: Latest Trends and Outlook (Feb 2025)

Macroeconomic Indicators

Inflation: Nigeria’s inflation surged to multi-decade highs in 2023, driven by the removal of petrol subsidies and a sharp currency devaluation. By December 2024, headline inflation hit 34.8% year-on-year under the old CPI series. In January 2025, the National Bureau of Statistics introduced a rebased Consumer Price Index (updating the basket and base year from 2009 to 2024), which lowered the recorded inflation to 24.48% year-on-year. Officials cautioned that this drop reflects a new methodology rather than indicating actual rapid disinflation in the market. Food prices remain a key source of inflationary pressure, with food inflation at 26.1% in January 2025. Going forward, the trend is expected to moderate as the one-time effects of subsidy removal and devaluation dissipate. Early 2025 data suggest inflation is gradually easing, supported by lower food prices due to increased food imports and the naira’s appreciation in both the official and parallel markets.

FX Reserves: Nigeria’s foreign exchange reserves declined recently to $38.8?billion in February 2025. In December 2024, gross external reserves reached $40.9?billion – a level last seen almost three years prior. Higher oil revenues improved foreign portfolio (FPI) inflows, and external borrowings contributed to this rise. However, reserves have since edged down slightly due to CBN interventions to stabilize the naira, unwinding of swaps, and meeting Nigeria’s debt obligation. The CBN expects reserves to gradually increase in 2025 if oil output expands as projected, but sustaining reserves will depend on continued inflows (oil exports, remittances, and foreign investment) versus the pace of FX market interventions.

Exchange Rate: The naira’s exchange rate underwent significant adjustment in 2024, declining by close to 41% against the US dollar. Encouragingly, early 2025 has seen the naira stabilize and even appreciate from its weakest levels. As of February 2025, USD/NGN trades around ?1,500 in both the official and parallel markets. This marks the first time in nearly two years that the two rates have converged with virtually no spread. In the week of February 21, 2025, the naira firmed from about ?1,560 to ?1,502 per $1 in the open market, aligning with ?1,502 at the official closing rate. Convergence at ?1,500/$ signals improved market liquidity and confidence.

?Exchange Rate Movements (USD/NGN)

Several drivers explain this recent naira strength: The central bank ramped up dollar supply in the market. By some estimates, authorities spent roughly $8?billion of reserves to defend the naira at its current level. This included fresh dollar injections and targeted support to key sectors. In addition, the CBN allowed licensed Bureau de Change (BDC) operators back into the official market. Eligible BDCs can now buy $25,000 per week from banks (at the Nigerian Autonomous Foreign Exchange Market rate) to sell to retail customers. Restoring this supply channel helped meet pent-up small-scale demand and squeezed the parallel market premium. Other reforms boosted FX inflows from non-oil sources, including foreign portfolio flows of close to $2?billion in January and February 2025 and diaspora remittances, which increased the market supply of dollars.

Sustained stability will depend on maintaining adequate FX supply. Any renewed pressure (for example, from a drop in oil prices, heightened inflation in advanced economies, or a surge in import demand) could test the ?1,500/$ level again. For now, however, the trend is one of cautious stability, with the naira strengthening by roughly 9% year-to-date in 2025 after its steep slide.

?Outlook – Projections for March 2025 and Beyond

The outlook for Nigeria’s FX market in the coming month or two is one of cautious optimism. The naira is likely to hover around its current level (?1,500 per USD) with managed stability. With official and parallel rates now unified, the CBN will strive to keep it that way, at least in the short run. It is expected that the central bank will continue supplying dollars (e.g., via direct interventions) to meet any excess demand through March. Barring any external shock, the exchange rate should remain relatively steady through the first quarter of 2025 and could even appreciate slightly if FX inflows stay strong. Analysts note the naira has already gained about 9% against the dollar since the start of 2025 due to the recent measures.

Inflation in the next few months should continue to trend downward on a year-on-year basis. The statistical rebasing has reset the baseline lower, and additional declines are expected as the one-time effects of the 2023 reforms fade. Fitch Solutions now forecasts Nigeria’s inflation to average around 20% in 2025 (under the new CPI series), a substantial downward revision from nearly 30% previously. By March 2025, headline inflation could ease into the low-20s on a year-on-year basis, especially if food prices are contained. Month-to-month price growth will be watched closely; early indications show some cooling in fuel prices and an uptick in agricultural output helping to slow price increases. With inflation “gradually falling” in the data, the CBN is likely to hold interest rates steady in the very near term. The February 2025 pause at 27.5% Monetary Policy Rate (MPR) is expected to continue into the next MPC meeting or two.

Key risks to the outlook include global and domestic factors. Externally, a sharp drop in oil prices or a global recession would cut Nigeria’s export earnings and could weaken the naira again. Likewise, if the U.S. Federal Reserve keeps interest rates high for longer, emerging markets like Nigeria might see renewed capital outflows, pressuring the FX market. Domestically, any reversal or slowdown of the reform momentum could undermine confidence. Political pressures could also emerge to defend the naira at all costs, especially if inflation bites consumers, but the authorities have so far shown resolve in allowing a market-driven approach.

On balance, the trajectory for Nigeria’s FX market appears more positive than it did a year ago. The worst of the dollar liquidity crunch has eased – dollar shortages have significantly abated after the government relaxed controls and let the naira find a market rate. The convergence of exchange rates is a major achievement, and maintaining unity will remain a central goal. If Nigeria can capitalize on higher oil output, sustain the remittance boom, and maintain consistent policies, the naira could even strengthen modestly or at least hold its value better than in recent years.

?Conclusion

The three major African economies analyzed demonstrate contrasting trajectories in their foreign exchange markets, reflecting their unique economic circumstances and policy approaches. Kenya exhibits the strongest position with stable inflation, improving reserves, and a steady currency supported by prudent central bank management. Ghana shows encouraging progress in its economic recovery program, with declining inflation and stabilizing currency, though still requiring high interest rates to maintain market confidence. Nigeria has made remarkable strides in unifying its exchange rates and building credibility in its reform agenda, though its recent currency strengthening remains somewhat fragile.

Looking ahead, all three countries face a similar set of external risks—potential oil price volatility, global interest rate movements, and shifting investor sentiment toward emerging markets. However, with continued reform implementation and adequate reserve management, these economies appear better positioned to weather external shocks than in previous years. The convergence of sound monetary policy frameworks across these diverse markets suggests a maturing approach to macroeconomic management that bodes well for longer-term stability in Africa’s key financial markets.

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