Market drops further by 0.12% as rate hike adds pressure on investors sentiments

Nigeria’s equities market decreased by 0.12 percent or N68billion on Wednesday, its second time this week following Tuesday’s hike in benchmark interest rate.

Banking and consumer goods stocks were mostly on the sell-side of the Bourse while investors bought insurance and industrial stocks.

Rising from its two-day meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday raised the Monetary Policy Rate (MPR), also known as the benchmark interest rate, to 26.75 percent from 26.25 percent which further makes equities less attractive than fixed income instruments.

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The Central Bank of Nigeria further ramped up tightening measures to rein in inflation.

Stock market reacted negatively to the rate hike as the Nigerian Exchange Limited (NGX) All-Share Index and Market Capitalisation decreased further from preceding day’s highs of 100,486.12 points and N56.898trillion respectively to 100,365.17 points and N56.830trillion. In 8,412 deals, investors exchanged 497,842,944 shares worth N8.605billion.

The market year-to-date (YtD) return decreased to 34.22 percent. This week it has decreased by 0.17 percent, while this month it has increased marginally by 0.31 percent.

United Capital research analysts said in their post-MPC note that “From a real interest rate point of view, Nigeria still grapples with negative real returns, thus deterring investments in the financial markets”.

Nevertheless, they expect yields in the fixed-income market to trend higher, “given the CBN’s disposition to deploy orthodox monetary policy tools (example the OMO auction) to mop up excess liquidity.

“For the equities market, this may further add pressure on investors’ sentiments. However, we expect the commencement of the second quarter (Q2) 2024 earnings season to serve as a potential tailwind”.