The professional services firm Deloitte has forecasted a policy rate reduction to 22.5% by 2025, a move that signals significant shifts in Ghana’s macroeconomic underpinning.
Ms. Gifty Annor-Sika Asantewah, a Financial Market Analyst and the President of Women In Forex Ghana, reacting to the development in an interview with the Vaultz News noted that this projection, built on expectations of a sustained disinflationary trend, has far-reaching impacts for various sectors of the economy, including the Ghana Stock Exchange (GSE).
“All things being equal, Deloitte’s recent outlook on policy rate drop is a huge boost or win for the Ghana Stock Exchange. You know, lower interest rates could serve as a powerful catalyst for stock market growth, bolstering investor confidence and unlocking new opportunities for economic advancement.”
Ms. Gifty Annor-Sika Asantewah
Ms Annor-Sika Asantewah explained that the policy rate, set by the Bank of Ghana, serves as the benchmark for lending rates in the economy. She noted that a reduction in this rate typically translates to lower borrowing costs for businesses and consumers, encouraging economic activity. Conversely, high policy rates often aim to combat inflation by curbing excessive spending and borrowing.
“Lower interest rates often make fixed-income securities, such as bonds, less attractive due to reduced yields. Investors seeking higher returns may shift their focus to equities, driving up demand for stocks on the GSE. This shift could result in higher stock prices and increased market capitalization, signaling a robust recovery for the exchange.”
Ms. Gifty Annor-Sika Asantewah
Ms Annor-Sika indicated that for companies listed on the GSE, lower borrowing costs mean reduced financial burdens. This, she said creates room for expansion, innovation, and improved profitability. “Enhanced corporate performance could lead to better dividends for shareholders and attract more investors to the market,” she added.
Moreover, the analyst posited that a declining policy rate is often perceived as a signal of economic stability. This perception, she explained that can boost investor confidence, encouraging both local and foreign investors to participate in the Ghanaian stock market. “Improved investor sentiment could increase liquidity and trading volumes on the GSE,” she said.
“Again, the GSE’s Ghana Alternative Market (GAX) provides a platform for SMEs to raise capital. A lower policy rate could make it easier and cheaper for these businesses to access funding, fostering their growth and enhancing their contributions to the stock market.”
Ms. Gifty Annor-Sika Asantewah
Sectoral Dynamics and Market Opportunities
While highlighting the impact on the various sectors of the local bourse, Ms Annor-Sika noted different sectors of the stock market are likely to experience varied impacts from the anticipated policy rate drop.
“For instance, companies in the consumer goods sector could benefit from increased consumer spending due to cheaper borrowing. Similarly, the real estate and infrastructure sectors might experience a surge in activity as lower rates make large-scale investments more feasible.”
Ms. Gifty Annor-Sika Asantewah
On the financial sector, she said banks and financial institutions listed on the GSE could see mixed impacts. “While lower rates may reduce their interest income margins, increased borrowing by businesses and individuals could offset this effect through higher loan volumes.”
Challenges to Consider
The analyst stipulated that while the policy rate reduction offers significant advantages, it also comes with potential challenges.
“A lower rate could lead to inflationary pressures if not managed carefully, potentially undermining the disinflationary progress achieved thus far. Moreover, there is a risk of currency volatility, as lower interest rates might encourage capital outflows in search of higher returns elsewhere.”
Ms. Gifty Annor-Sika Asantewah
She noted that structural reforms will also be critical in ensuring that the benefits of a reduced policy rate are fully realized. “Addressing fiscal deficits, improving the business environment, and enhancing regulatory frameworks will be essential to sustaining economic growth and stability.”
Meanwhile, the Bank of Ghana (BoG) cut its benchmark interest rate twice in 2024 by a cumulative 300 basis points to close the year at 27% per annum. The return to a neutral monetary policy stance is the beginning of an accommodative posture and was driven by the decline in inflation that occurred for almost half of the year. “The reduction in interest rates is expected to persist and more frequently in 2025 on the back of a sustained disinflationary trend”, Deloitte West Africa revealed in a report titled ‘Sneak Preview of 2025’.
All in all, Deloitte’s forecast of a 22.5% policy rate by 2025 paints a promising picture for Ghana’s economic trajectory. For the Ghana Stock Exchange, this development could mark the beginning of a new era of growth and investor confidence. The anticipated increase in equity investments, coupled with reduced financing costs for businesses, creates a conducive environment for the GSE to thrive.
However, careful policy management will be necessary to navigate potential challenges and maintain economic stability. For investors, this is an opportune moment to explore the untapped potential of Ghana’s capital markets. The GSE, backed by favorable monetary policy conditions, is poised to become a cornerstone of Ghana’s economic resurgence.
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