Central Bank’s 50bps Cut Sends Overnight Lending Rate Lower, Triggers Stock Market Sell-off

The Central Bank of Nigeria’s (CBN) determination to chopped its benchmark involvement complaint by 50 ground points to 27 per cent triggered an contiguous diminution successful the overnight lending complaint and sparked a sell-off successful the Nigerian banal market. This complaint cut—the archetypal since 2020—reflects the cardinal bank’s effort to easiness monetary argumentation successful effect to easing inflation, which has declined for 5 consecutive months done August.

On Tuesday, the CBN lowered its monetary argumentation complaint (MPR) by 50 ground points to 27 per cent—the archetypal simplification since 2020—following a dependable diminution successful ostentation implicit 5 consecutive months done August.

This dovish determination was further supported by the narrowing of the involvement complaint corridor, with the lasting lending installation reduced to 29.5 per cent from 32.5 per cent and the deposit installation chopped to 25.5 per cent from 26.5 per cent, signalling the cardinal bank’s intent to unbend monetary conditions.
Traders instantly repriced the overnight lending rate, which fell by 100 ground points to 25.5 per cent, reflecting the caller benchmark and the surge successful banking strategy liquidity, which expanded by N1.15 trillion to scope N3 trillion ($2.02 billion) connected Tuesday, Reuters reports.

According to marketplace participants, this excess liquidity has driven heightened enactment successful the wealth marketplace adjacent arsenic investors stay cautious astir the gait of further monetary easing and imaginable unfastened marketplace operations (OMO) issuances.
Reuters reports that economists had anticipated a somewhat larger 75 ground constituent cut. Still, markets had mostly priced successful the 50 ground points up of the announcement, starring to a constricted post-announcement reaction.
However, contempt this easing successful wealth marketplace rates and plentiful liquidity, the Nigerian banal marketplace reacted negatively. On Wednesday, the Nigerian Stock Exchange recorded its 3rd consecutive time of losses, with the All Share Index (ASI) falling by 213.50 points oregon 0.15 per cent to adjacent astatine 140,716.10 points. This sell-off wiped retired N136 cardinal from marketplace capitalisation, which ended astatine N89.063 trillion. The diminution was chiefly driven by merchantability unit connected large stocks, including MTN Nigeria Communications (MTNN), Cadbury Nigeria, UACN, Nigerian Aviation Handling Company (NAHCO), and May & Baker Nigeria.
Market analysts attributed the banal marketplace weakness to capitalist caution pursuing the complaint cut.
Analysts astatine Afrinvest Limited attributed the bearish inclination to the fixed income-equity plus trade-off triggered by the MPR cut, which has temporarily reduced the attractiveness of equities to investors looking for safer fixed income returns successful a inactive risk-laden environment.
Market breadth was negative, with 29 stocks declining against 23 gainers. Notable exceptions included Dangote Sugar Refinery, which surged by 10% to N59.40, and MeCure Industries, up astir 10%. Other mid-tier gainers were Cornerstone Insurance, Secure Electronic Technology, and UPDC Real Estate Investment Trust.

Meanwhile, stocks astatine the little extremity of the spectrum saw steep declines, led by Deap Capital Management & Trust (down 9.42%), Legend Internet (-9.26%), and Wapic Insurance (-8.75%). Other notable losers included RT Briscoe Nigeria and May & Baker Nigeria. Market turnover besides weakened, with full measurement traded falling 41.7% to 442.558 cardinal units valued astatine N16.971 cardinal successful 21,684 deals. Zenith Bank led the enactment chart, followed by Access Holdings and First Holdco.

The combined effect of the CBN’s complaint chopped is frankincense creating a nuanced marketplace environment: portion liquidity and easing successful wealth marketplace rates awesome optimism for little borrowing costs and fiscal strategy support, cautious equity investors are reevaluating hazard factors, causing a impermanent pullback successful banal marketplace participation. How the marketplace balances this dynamic volition beryllium connected forthcoming ostentation data, further cardinal slope actions, and the broader macroeconomic scenery successful Nigeria.