Operators have criticized the Central Bank of Nigeria’s (CBN) move to raise interest rates, claiming that it could soon reduce investors’ desire for stocks and threaten the market’s bullish outlook.
In the fight to get out of the recession, they claimed that ineffective monetary policy had unintentionally increased the money supply, while structural barriers that had hampered trade and industry combined with surplus liquidity aggravated inflation.
They assert that investors migrate their money from money market instruments to the stock market for a better yield when interest rates are low, just as they do from stocks to other asset classes, particularly fixed income securities, when interest rates are high.
For instance, Tajudeen Olayinka, Chief Executive Officer of Wyoming Capital & Partners, stated that a rise in MPR will immediately cause investors to reassess the prices of financial assets, whether they be equity or fixed income securities.
Naturally and automatically, the price movement’s direction would be different in both cases. Subject to system liquidity (i.e., demand and supply of instruments), yields on fixed income instruments would increase while stock prices would decline.
“According to this example, the CBN should increase the supply of government securities to be able to absorb the system’s apparent excess liquidity.
What has frequently happened, though, is that CBN and the federal government have avoided taking on the financial burden of a mop-up operation. This is likely due in part to CBN’s engagement in fiscal operations and partly to mounting debt payment commitments that are endangering debt sustainability.
“So, what CBN does is directly enhance tightening around the banks in a way that forces the banks to increase deposit and lending rates at the same time, and hence increase deposit mobilization and savings in the economy,” he continued.
Yesterday, the market capitalization of the Nigerian Exchange Limited (NGX) decreased by an additional N66 billion, extending losses for the second straight session.
The All Share Index (ASI), which closed at 52,186.52 points, dropped by 122.36 absolute points, or 0.23 percent. The market capitalization also decreased by N66 billion to finish at N28.142 trillion.
Losses in medium- and large-capitalized equities, including those in Nigerian Breweries, the Nigerian Exchange Group (NGXGroup), the Nigerian Aviation Handling Company (NAHCO), Guaranty Trust Holding Company (GTCO), and Oando Plc., had an impact on the downturn.
Analysts anticipate cautious trading as participants process the Monetary Policy Committee (MPC) meeting’s rate hike decision and the market prepares for additional earnings reports and interim dividends.
“Equities market closed trading activities for yesterday were negative, as sell-off was evident across four key market sectors, with the consumer goods sector leading the way,” according to GTI Securities Limited.
As investors respond to the recent interest rate hike by the Apex bank and the rising cost of living, “we expect cautious trade to continue throughout the week.”
Market breadth ended down, with 22 decliners to 13 advancers. The two companies with the largest price increases were Multiverse Mining and Exploration and Computer Warehouse Group (CWG), closing at N1.78 and 89 kobo per share, respectively.
Following Academy Press, which increased by 9.68% to close at N2.04, R.T. Briscoe Nigeria and The Initiates Plc (TIP) both saw increases of 9.09% to close at 48 kobo per share.
On the other hand, NAHCO, which closed at N5.40 per share, topped the losers’ chart by a margin of 10.00%. Nigerian Breweries lost 6.13 percent to settle at N49.75 per share, while FTN Cocoa Processors fell 8.57 percent to close at 32 kobo.
Oando lost 5.50% to settle at N5.15, per share, while Consolidated Hallmark Insurance lost 5.71% to conclude at 66 kobo.
The whole volume traded increased by 15.87% to 238.270 million shares, valued at N3.336 billion, and transacted in 3,814 trades. With 40.909 million shares changing hands for N49.091 million, transactions in shares of LivingTrust Mortgage Bank topped the list of activity.
United Bank for Africa (UBA) traded 26.708 million shares valued at N198.455 million, followed by Nigerian Breweries with 30.379 million shares worth N1.513 billion.
FBN Holdings (FBNH) traded 17.859 million shares for N196.625 million, while Access Holdings traded 21.903 million shares worth N199.093 million.