CBN Rate Hike Spurs 2.33% Decline in Nigerian Stock Market

The Nigerian stock market experienced a downturn in the week ending Friday, July 26, 2024 as a result of a recent decision by the Central Bank of Nigeria (CBN) to raise its benchmark interest rate.

The Nigerian Exchange Limited (NGX) All-Share Index (ASI) and market capitalization plummeted by 2.33% to a loss of approximately N1.32 trillion in value.

The week opened with modest gains, but the market swiftly turned bearish following the CBN’s announcement on Tuesday.

The Monetary Policy Committee (MPC) of the CBN increased the Monetary Policy Rate (MPR) from 26.25% to 26.75%.

This move, intended to combat soaring inflation, has made equities less attractive compared to fixed income investments, contributing to the market’s downward spiral.

The NGX ASI fell from 100,539.40 points the previous Friday to 98,201.49 points by the close of the review week.

Similarly, the market capitalization dropped from N56.929 trillion to N55.605 trillion. The decline was marked by four consecutive days of negative closes, overshadowing a single day of gains.

Investor sentiment was further dampened by disappointing half-year financial results from several companies, which exacerbated the market’s retreat.

The most pronounced losses were observed in the industrial and banking sectors, which declined by 5.89% and 2.94%, respectively.

Also, the consumer goods sector saw a decrease of 0.73%, while insurance and oil & gas stocks fell by 0.27% and 0.54%, respectively.

This drop comes amidst a broader trend of market volatility. For the month of July, the market has decreased by 1.85%, although the year-to-date return still stands at a respectable 31.33%.

Despite this positive annual return, the recent rate hike has intensified concerns among investors about the sustainability of stock market gains in the face of increasing interest rates and inflationary pressures.

Analysts suggest that the CBN’s aggressive tightening measures, while necessary to curb inflation, are creating ripples throughout the financial sector.

The shift in investor preference towards fixed income securities, driven by higher interest rates, is likely to persist if the CBN continues with its current monetary policy stance.