Central Bank’s Interest Rate Hike Causes Loss In Stock Market

The Central Bank of Nigeria (CBN) has made a decision to increase interest rates on Treasury bills (TBs) which inadvertently contributed to the imminent loss in the stock market today.

Investors in the Nigerian stock market have faced significant losses amounting to N1.4 trillion.

During the TB auction held last week, the Central Bank raised the stop rates for the 91-, 182-, and 364-day TBs to 17.24%, 18.00%, and 19.00%, respectively, marking a substantial increase from the previous rates of 5.00%, 7.50%, and 11.54%.

This move prompted investors to shift their focus to the fixed income market, enticed by the attractive high yields offered by Treasury bills, resulting in a sell-off of shares on the Nigerian Exchange Limited (NGX).

Consequently, the market capitalization, representing the total value of investments, plummeted to N55.735 trillion on Friday from N57.158 trillion the previous week, indicating a significant loss for stock market participants.

Similarly, the NGX All Share Index (ASI) experienced a decline of 2.5%, closing at 101,858.37 points compared to 104,421.23 points in the previous week.

The market performance analysis revealed that the sell-off in certain stocks, particularly BUA Cement, Dangote Sugar, and UBA, contributed to the overall weak performance of the market. Conversely, gains were recorded in GEREGU, BUA Foods, and Transcorp Hotel.

As a result of these developments, the Year-to-Date (YtD) return fell to 36.22%.

Market analysts attributed the bearish sentiment witnessed at the NGX to the heightened TB rates, prompting institutional investors and others to rebalance their portfolios for safety ahead of the Monetary Policy Committee (MPC) meeting scheduled for this month.

In response to the market dynamics, analysts at InvestData Consulting Limited highlighted the dominance of the government in the fixed income market with high rates and yields. They advised investors to take advantage of price corrections and brace for volatility amidst upcoming events both globally and domestically.