The Nigerian stock market has not yet reacted favorably to the Central Bank of Nigeria’s lowering of the Monetary Policy Rate (MPR) to 27 percent, the first such reduction in five years.
Announced following a two-day Monetary Policy Committee (MPC) meeting, the long-awaited action sought to stimulate economic activity and lighten credit conditions for households and companies.
But as the benchmark index fell 0.40 percent to 140,929.6 points, pulling market capitalization to N89.198 trillion, the equities market closed in the red. Wide-ranging losses were present, with the worst hit among important industries like oil and gas and finance.
Given good half-year results from banks and expectations for interim dividend payments, The News Chronicle confirmed that investors had anticipated the rate cut to stimulate fresh interest in equities. Still, market confidence seems tenuous, pointing toward more actual policy effects needed before investors make major positioning.
Usually, reduced interest rates are supposed to lower borrowing expenses, promote consumption, and spur investment. As companies get access to less expensive credit and consumers enjoy better purchasing power, this ripple effect usually helps stock values. This expected upside, however, is still not realised on the Nigerian Exchange (NGX).
The MPC not only lowered the MPR by 50 basis points but also shifted the asymmetric corridor to +250bps/-250bps. Furthermore, holding merchant banks’ CRR, the committee reduced the Cash Reserve Ratio (CRR) for commercial banks from 50 percent to 45 percent. Kept the liquidity ratio at 30 percent at 16% and created a 75% CRR on non-TSA public sector deposits.
Although these policies aim to boost borrowing and economic expansion, experts advise investors to take a wait-and-see posture until the impact starts to spread into the general economy. The muted response now shows cautious attitude as many market players want stronger signals before fully engaging with Nigerian equities.
