CBN rate cut to reposition stocks, bonds, banking sector — Analysts

The Central Bank of Nigeria’s (CBN) decision to reduce the Monetary Policy Rate (MPR) by 350 basis points to 23 per cent is expected to reshape investment flows between fixed-income securities and equities, with analysts projecting lower yields on government securities and greater selectivity in the stock market.

The Monetary Policy Committee (MPC) announced the reduction at its September meeting, cutting the MPR from 26.5 percent and resetting the Standing Facilities Corridor to +50/-300 basis points.

The Standing Lending Facility is now 23.5 per cent, while the Standing Deposit Facility is 20 percent. The Cash Reserve Requirement for Deposit Money Banks remains 45 per cent.

The decision comes after Treasury bill yields had already begun declining. The stop rate on the 364-day Treasury bill fell from 17.59 per cent in August to 16.62 per cent on September 9, marking its third consecutive decline.

Futureview Securities expects further downward pressure on short-term fixed-income yields, although it said the decline may be smaller than the 350-basis-point MPR adjustment because market rates had already fallen below the previous benchmark.

For investors, falling yields could make newly issued Treasury bills and bonds less attractive relative to equities. Existing holders of longer-dated bonds, however, could benefit from price appreciation if market yields continue to decline.

The Head of Business Development at Blue Marina Securities, Vincent Oshoma, said the speed at which fixed-income yields adjust would be critical to determining whether investors move more funds into equities.

“The critical question becomes how quickly fixed-income yields fall. If bond/T-bill yields decline materially, there is a strong incentive for domestic investors to rotate toward equities,” he said.

The potential shift comes as the Nigerian Exchange (NGX) is already trading at elevated levels. The All-Share Index gained 0.18 per cent on Tuesday to close at 250,614.66 points, taking its year-to-date return to 61.05 per cent.

Futureview Securities said the rate reduction should not trigger indiscriminate buying, noting that earnings, dividends, valuations and company-specific fundamentals would increasingly determine stock performance.