FOLLOWING the benchmark interest rate hike by the Central Bank of Nigeria (CBN) on Tuesday, July 23, the Nigerian stock market reacted negatively as investors lost N46.70 billion at the close of the day’s trading.
At the end of its two-day bi-monthly monetary policy committee (MPC) meeting, the apex bank raised the benchmark interest rate by 50 basis points to 26.75 per cent for the fourth consecutive time to fight inflation.
The ICIR reports that the monetary policy rate, otherwise known as the benchmark interest rate, is a tool the apex bank uses to tame inflation which rose to 34.19 per cent in June.
At the close of the trading session on Tuesday, the stock market reversed its gain on Monday, July 22, amid a wide sell-off and negative sentiment from investors.
The Nigeria stock market All-Share Index declined to 100,486.12 points on Tuesday from 100,568.60 points on Monday and the market capitalisation dropped to N56.89 trillion as investors lost N46.70 billion.
Of the 113 transactions that took place on the floor of the Nigeria Exchange Limited (NGX), only 14 companies’ shares gained. While 27 companies’ shares traded at a loss, other companies’ shares remained unchanged.
Trading activity was largely downbeat as the total number of deals, volume, and value declined to 8,403 deals, 280.92 million units, and N3.63 billion market turnover from 8,760 deals, 335.70 volume, and N3.72 billion.
John Holt, Omatek Ventures, Deap Capital Management and Trust, and Secure Electronic Technology were the top losers.
On the contrary, Ikeja Hotel, Linkage Assurance, Caverton Offshore Support Group, and Sovereign Trust Insurance were the companies that topped the gainers’ chart.
On sectoral performance, the bank and insurance stocks declined to 842.15 points from 847.79 points and 377.72 points from 378.27 points, respectively; consumer goods companies’ shares rose to 1,565.47 points from 1,564.51 points; and the oil and gas and industry closed flat.
At the close of Tuesday’s trading activity, Veritas Kapital Assurance trading led the total transaction volume with 22.51 million units, while United Capital led in traded value amounting to N817.09 million.
The CBN Governor Olayemi Cardoso-led monetary committee has hiked the benchmark interest rates four times this year by 800 basis points.
In its first meeting for the year, the committee raised the rate to 26.75 per cent from 18.75 per cent, tightening the cycle in February with a 400 basis point hike. It was followed by additional increases of 200 basis points in March,150 basis points in May, and 50 basis points in July.
“We project the market will continue to witness the seesaw in performance as investors continue to react to the market based on the prevailing micro and macroeconomic indicators,” analysts at GTI Group said.
In April, The ICIR reported that investors lost over N3 trillion in one month after CBN’s rate hike.
An investment and portfolio analyst, Abel Ezekiel, told The ICIR that CBN’s rate hike made investors shift portfolios from higher-risk stocks to the fixed-income market.
“If MPR increases, the rate at which the government wants to borrow money from investors will rise. This will now make investors dump the stock market for the bond market, treasury bill, and other fixed-income assets,” he said.