The Nigerian stock market

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The Nigerian stock market, represented by the Nigerian Exchange Limited (NGX), experienced a significant downturn, losing N1.49 trillion in just two days. The decline was triggered by the recent hike in the interest rate by the Monetary Policy Committee (MPC). Investors responded to the increase in the Monetary Policy Rate (MPR) and shifted their focus to the fixed income market, resulting in negative sentiment in the stock market.

Nigerian Stock Market Loses N1.49 Trillion in Two Days Following Interest Rate Hike

A picture of The Nigerian stock market at loss

The MPC announced an increase in the Monetary Policy Rate from 18.75 percent to 22.75 percent. This decision had an immediate impact on the stock market, causing a sell-off in fundamental stocks and leading to a drop of N773 billion in market capitalization on the first day.

The negative sentiment continued on the following day, with the stock market witnessing a further decline of N720.57 billion in market capitalization, bringing the total loss for investors to N1.49 trillion over the two-day period.

The MPC also made other key decisions during its meeting. They increased the asymmetric corridor to +100 basis points /-700 basis points and raised the Cash Reserve Ratio (CRR) to 45 percent from 32.5 percent. However, the liquidity rate was retained at 30 percent.

The decisions of the MPC were driven by concerns over inflationary and exchange rate pressures, projected inflation, and rising inflation expectations. The committee acknowledged the trade-off between pursuing output growth and taming inflation but emphasized the need for a low and stable inflation environment to achieve sustainable economic expansion.

Impact on Stock Prices: GTCO, Zenith Bank, and UBA Stocks Hit by Declines as Nigerian Stock Market Faces Turbulence

An image of The Nigerian stock market running at loss with a red and black arrow going down

The decline in the stock market affected the share prices of major companies such as Guaranty Trust Holding Company Plc (GTCO), Zenith Bank Plc, and United Bank for Africa (UBA). For example, GTCO’s share price dropped by 8.86 percent, Zenith Bank’s share price declined by 8.07 percent, and UBA’s share price decreased by 13.9 percent.

Analysts’ Outlook

A picture analysis of The Nigerian stock market

Analysts from Cordros Research observed that the increase in fixed-income yields had already reduced interest in equities among domestic institutional investors before the MPC meeting. They anticipate a further negative impact on the equities market in the short term due to the unexpected 400 basis points hike in the MPR. The analysts predict a prolonged bearish market trend driven by yield movements and uninspiring corporate earnings.

The Nigerian stock market experienced a significant downturn following the MPC’s decision to raise the interest rate. Investors shifted their focus to the fixed income market, resulting in a loss of N1.49 trillion in market capitalization over two days. The MPC’s hawkish stance is expected to heighten risk-off sentiments and prolong the bearish market trend as domestic investors opt for safer assets amid rising fixed income yields.