Markets see first dip this week as MPC sustains tightening

Nigeria’s equities market saw its first negative close this week as the Monetary Policy Committee (MPC) of the Central Bank sustains its tightening policy into 2023. The market decreased slightly by 0.09percent or N25billion, driven by record dip in prices of NGX Group, Nigerian Breweries, Champion Breweries, Caverton Offshore Support, and Coronation Insurance.

The Nigerian Exchange Limited (NGX) All-Share Index (ASI) and its equities market capitalisation depreciated from preceding day’s highs of 52,657.69 points and N28.681trillion to 52,612.55 points and N28.656trillion.

The 289th meeting of the Monetary Policy Committee (MPC) which started on Monday ended on Tuesday, January 24. The MPC raised the Monetary Policy Rate (MPR) by 100 basis points (bps) to 17.5percent; retained the asymmetric corridor of the MPR at +100 / -700 basis points; retained the Cash Reserve Ratio (CRR) at 32.5percent; and retained liquidity ratio at 30percent.

“In our view, the decision of the MPC to sustain monetary policy tightening until inflationary pressures subside adds to recent indicators of higher yields in 2023. These other indicators include the fiscal authority’s plan to raise circa N7 trillion from the domestic market to fund its historically high budgetary deficit amidst lower liquidity expectations for 2023. Given this expectation, we recommend a short-duration strategy for domestic fixed-income investors,” said CardinalStone Research.

Nigerian Breweries led the decliners league after its share price dropped from N46.45 to N41.85, losing N4.60 or 9.90percent. It was followed by NGX Group which dipped from N27 to N25.40, shedding N1.60 or 5.93percent. Also, Champion Breweries was down from N5 to N4.60, losing 40kobo or 8percent, while Caverton also dropped from N1.05 to 95kobo, shedding 10kobo or 9.52percent.

Geregu Power, Access Corporation, Transcorp, Chams and UBA were top-5 traded stocks as investors in 3,470 deals exchanged 182,397,318 shares valued at N4.821billion.

“Tightening would signal confidence in the effectiveness of its monetary policy direction to combat elevated inflation, improve financial system stability, help narrow the negative real interest rate margin, and moderate exchange rate fluctuations,” said Chinwe Egwim, Chief Economist at Coronation Merchant Bank in a post-MPC note.