Hike In MPR: Equities Market Dip N1. 49trn In Two-days 

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The equities market on Wednesday reacted to the hike in interest rate by the Central Bank of Nigeria (CBN), depreciating by N1.49 trllion in two days, second day after the Monetary Policy Committee (MPC) announced the new Monetary Policy Rate (MPR)

 

The MPC apex bank at its first meeting of 2024 voted to raise the MPR by 400 basis points to 22.75 per cent from 18.75 per cent.

The members after the two-day meeting in Abuja increased the asymmetric corridor to +100 basis points /-700 basis points (Previously: +100 basis points /-300 basis points).

The members also voted to increase CRR to 45.0per cent from  32.5 per cent; and retain liquidity rate at 30per cent.

On Wednesday however, the market capitalisation dropped to N54.317 trillion, a decline of N1.49 trillion from N55.811 trillion the stock market opened for trading this week.

When the hike was announced on Tuesday, the stock market dropped by N773 billiion as sell-offs were exacerbated by the hike in MPR by the committee members.

On Wednesday, it dropped by N720.57 billion, bringing the cumulative loss in two days to N1.49trillion.

Prof. Uche Uwaleke of the Department of Banking & Finance, Nasarawa State University, had expressed concerns over the sudden hike of the MPR by 400 basis points which he described as an overkill.

He wondered, “Why the raise was more than 200 basis points since they have another opportunity to meet next month and review impact?

“They didn’t stop at MPR, they also jerked up the CRR to 45% which at the previous level of 32.5% was among the highest in Sub-Saharan Africa.”

He expressed that the CBN Governor had assured that the policies of the bank would be evidence-based. Which empirical results support this aggressive move? I pity the real sectors of the economy.

“The implication is that for every deposit in the bank, CRR takes 45% of it while the liquidity ratio takes 30per cent. So it is only 25per cent of the deposit that banks can lend!

“This has negative implications for access to credit, cost of capital for firms, cost of debt service by the government, and asset quality of banks.

“Expect banks to quickly reprice their loans with negative consequences for non-performing loans and financial soundness indicators.

“By this overkill on the economy in a bid to crash elevated inflation which by the way has numerous non-monetary factors driving it, output is bound to shrink

“So, expect lower GDP numbers especially from Agric and Industry sectors as well as a surge in unemployment levels. This is not a welcome development,” he added.

Analysts at Cordros Research said, “Before the meeting, we noticed that the increase in yields in the fixed-income market reduced interest in equities, particularly among domestic institutional investors.

“Following the unexpected 400bps hike in the MPR by the MPC, we anticipate a further negative impact on the equities market performance in the short term. Indeed, the stock market closed with a 1.4per cent decline today, likely due to negative sentiment from investors, as rising fixed-income yields typically reduce the appeal of equities.

“Overall, the MPC’s hawkish stance is expected to further heighten risk-off sentiments in the local market, as domestic investors, who make up the majority of market participants (c.92.0per cent as of January 2024), may opt for safer assets amid rising fixed income yields.

“Consequently, we anticipate a prolonged bearish market trend driven by yield movements and the uninspiring corporate earnings reported thus far.”

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