Ghana’s central bank has likely given the world’s best-performing stocks this quarter a boost.
It cut its key interest rate for a third straight meeting on Monday and has now reduced borrowing costs this year by 4.5 percentage points to the lowest level since early 2015. That eases funding costs for companies and boosts the appeal of their shares, according to IC Securities Ltd., the country’s biggest broker.
“Investors are likely to flock to the stock market,” said Randy Mensah, the head of global markets at IC Securities in the capital, Accra. He sees the GSE Composite Index extending its advance to 50 percent by the end of 2017, from 32 percent so far this year.
The Bank of Ghana reduced the rate 150 basis points to 21 percent, 50 basis points more than the median of nine economists’ estimates.
The benchmark stock index’s performance this year is the best in Africa after Zimbabwe and almost triple that of the MSCI World Index, which advanced 12 percent. Its gain in 2017 is the biggest on a year-to-date basis since 2013.
“Investors think there’s still more room for prices to rise,” Mensah said.
The gauge’s 13 percent increase since the end of June, in both dollar- and cedi-terms, is the most among more than 90 major gauges tracked by Bloomberg globally.
The rally has lifted stock valuations in Ghana to the highest level in about three years. Their price as a multiple of estimated book value has climbed to 2.08, exceeding the valuation of South African shares for the first time since January 2016.
“While stocks are expensive, Ghana’s improving macroeconomic conditions such as falling inflation and interest rates, as well as a general uptick in business confidence, will sustain demand,” Mensah said.