The Monetary Policy Committee (MPC) decisions on greater flexibility of the naira/$ exchange rate; and further tightening of monetary policy, is a signal to investors that the CBN is prepared to act, say analysts.
“The combined measures should help to support market sentiment in the near term and ease pressure on reserves. It gives the CBN a better chance that it can get through to February’s elections without further or even stronger measures becoming necessary,” said Stuart Culverhouse, global head of research, at Exotix Sovereign Research.
“The measures reassert the CBN’s operational independence, which is perhaps important, after events earlier this year and ahead of February’s election. It prioritises price stability over a lower rate environment.”
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While fixed income investors may be enticed by expected higher yields on government securities from the tighter money policy, the stock market may struggle to rally, as banks and consumer names digest the implications of the CBNs hike in rates and devaluation on profits.
Stock investors took a buy decision ahead of the MPC decision which reflected in a 0.71 percent gain on Tuesday.
Before now, market sentiments had favoured cautious trading, due to risk scenario earlier seen around the naira; which triggered massive sell-off on Nigerian assets – with a contagion on the performance and outlook of Nigerian equities.
Trading activities on the Nigerian Stock Exchange increased by 34.55 percent, as investors bought 357.77 million shares, worth N4.36 billion, in 4,666.00 deals, compared to 265.90 million shares worth N2.88 billion, in 3,567.00 deals exchanged on Monday.
The Nigerian Stock Exchanges – All Share Index (ASI) appreciated by 0.71 percent (240.58 points) to close at 34,115.84 from 33,875.26 recorded last Monday. Market capitalisation also increased to N11.26 trillion from N11.18 trillion the preceding trading day.
Equities market will likely see a mix of bargain hunting and profit-taking in the days ahead analysts say.
IHEANYI NWACHUKWU
