WED, 28 SEPT, 2022-theGBJournal| The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) Tuesday voted to raise the Monetary Policy Rate (MPR) by 150bps to 15.5% – the third consecutive rate hike in 2022.
The hike brings the total rate increase so far in 2022 to 400bps, representing the largest annual increase since 2011FY (+575bps). Based on the voting pattern, ten members voted to increase the MPR by 150bps, one voted for a 100bps hike, and the final voted for a 50bps increase in the MPR. Notably, the Committee voted to increase the Cash Reserve Requirement (CRR) to a minimum of 32.5%.
Aside from that, the Committee also voted to retain the asymmetric corridor around the MPR at +100bps/-700bps and the liquidity ratio at 30.0%.
Since the last MPC meeting held in July, the All-Share Index has shed 6.0% (as of 27th September) as sensitivity to rising fixed income yields has remained elevated, despite the broadly decent earnings delivered by companies during the H1-22 earnings season.
In view of the outcome of the MPC meeting, we believe the CRR hike would drag the banks’ profitability, as downward pressure on net interest margins (NIM) would inhibit earnings growth and may further limit investors’ interest in banking stocks.
Additionally, we believe that the MPC’s hawkish tone would likely worsen risk-off sentiments in the local bourse as domestic investors who constitute the dominant portion of the market share (77.2% as of September 2022) may take a flight to safety amid rising FI yields.
Overall, we expect the local bourse to maintain cautious trading sentiments as electioneering activities kick off in full gear.- With Cordros Research
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