Nigeria: CBN’s Interest Rate Hike Dampens Stock Market Performance

The Nigerian Exchange Limited (NGX) experienced a downturn last week as the stock market reacted negatively to the Central Bank of Nigeria’s (CBN) recent interest rate hike.

During its latest Monetary Policy Committee (MPC) meeting, the apex bank raised the benchmark Monetary Policy Rate (MPR) by 25 basis points, bringing it to 27.5% from the previous 27.25%. This marks the sixth consecutive rate hike in 2024, resulting in a cumulative increase of 875 basis points from 225 basis points recorded in 2023.

Reflecting the impact of the MPC’s decision, the NGX All-Share Index (ASI) declined by 0.3% on a week-on-week (W/W) basis, closing at 97,507.87 points compared to 97,829.02 points in the prior week.

Significant sell-offs in key stocks contributed to the market’s decline. Seplat dropped by 6.0%, GTCO fell by 3.0%, and MTN Nigeria slipped by 1.2%. Conversely, notable gains were recorded in WAPCO (+7.4%), Oando (+6.7%), and FBNH (+3.5%).

Market activity remained robust, with trading volume and value surging by 63.6% and 52.8% W/W, respectively. However, sectoral performance was mixed:

• The Oil & Gas Index fell by 1.9%,
• The Consumer Goods Index declined by 0.4%,
• The Banking Index dropped by 0.3%.

On the other hand, the Insurance Index gained 1.2%, while the Industrial Goods Index advanced by 0.8%.

A month-on-month (M/M) analysis revealed a marginal 0.1% decline in the market, with investors losing N64 billion. The market capitalization closed at N59.207 trillion on Friday, compared to N59.271 trillion at the end of October 2024. Despite the recent fluctuations, the year-to-date (YTD) market return remains positive at 30.4%.

Analyst Perspectives:

• Cordros Research expects cautious trading to persist in the short term, citing the absence of significant positive catalysts to improve investor sentiment.
• InvestData Consulting Limited anticipates mixed market sentiments as investors digest the impact of the recent rate hike. Analysts project continued profit-taking, bargain hunting, and portfolio rebalancing, driven by low valuations and strategic positioning by “smart money” ahead of the year-end.

Despite the short-term volatility, market participants continue to monitor developments while seeking opportunities amidst the changing macroeconomic environment.