In a continuation of its aggressive monetary tightening, the Central Bank of Nigeria (CBN) has raised the nation’s key interest rate for the second consecutive time this year. This decision was made at the conclusion of the 294th meeting of the Monetary Policy Committee (MPC), which was held in Abuja on Tuesday.
The CBN raised the Monetary Policy Rate (MPR), which serves as the country’s benchmark interest rate, by 200 basis points, bringing it to 24.75%. This represents a significant increase from the 22.75% MPR set in February 2024, reflecting the bank’s ongoing efforts to combat inflation and attract foreign capital inflows, especially from foreign portfolio investors (FPIs). In a market note, ARM Securities explained that the CBN’s decision aligns with its goal of curbing rising inflation and boosting foreign investments.
Additionally, the CBN confirmed it would maintain the Cash Reserve Ratio (CRR) for deposit money banks at 45% and the liquidity ratio at 30%. However, it made a crucial adjustment to the asymmetric corridor, narrowing it from +100/-700 basis points to +100/-300 basis points. Furthermore, the Cash Reserve Ratio for merchant banks was raised from 10% to 14%.
CBN Governor, Godwin Emefiele, in his address after the MPC meeting, emphasized that the committee’s decision was largely influenced by ongoing inflationary pressures and the need to stabilize inflation expectations. The bank’s primary focus remains on restoring price stability, ensuring that the purchasing power of Nigerians is preserved in the medium term, while also striving for exchange rate stability.
The immediate impact of the rate hike was evident in Nigeria’s stock market. By the close of trading on March 26, the market capitalization of listed equities dropped to N58.77 trillion, down from N58.87 trillion the previous day. This marked a loss of nearly N104 billion in a single day. The All-Share Index (ASI), a key indicator of the market’s performance, closed at 104,136.35 points, down 0.49% from the previous day’s 104,647.37 points.
Several major stocks saw large volumes of trades, with GT Holdings leading at 67.15 million shares, followed by UBA with 51.47 million shares, Zenith Bank with 42.43 million shares, Access Holdings with 33.32 million shares, and Fidelity Bank with 30.02 million shares.
Subsector indices also experienced declines, with the NGX 30 Index falling by 0.22%, the NGX Industrial Index down by 0.01%, and the Meri-Telco index dropping by 0.23%.
Out of the 152 stocks traded that day, 25 experienced price drops, while 27 saw price gains, and the remaining 100 stocks remained unchanged.
Analysts predict that the downward trend in the equity market will persist as investors increasingly turn to the more attractive returns offered by the fixed income market in response to the higher interest rates. According to Afrinvest, there is an expectation of continued bearish movement in the stock market as investors reevaluate the appeal of equities in light of the ongoing monetary tightening by the MPC.
