CBN 350bps MPR cut to drive equities demand as investors rotate from fixed income

Nigeria’s equities market could see stronger investor demand following the Central Bank of Nigeria’s (CBN) decision to cut its benchmark interest rate by 350 basis points to 23%.

The rate cut, announced after the Monetary Policy Committee’s 307th meeting, represents the second MPR reduction in 2026 and a significant easing of monetary conditions.

Market analysts expect lower borrowing costs to encourage portfolio rotation from fixed-income securities into equities as yields on government securities adjust downward.

As at the close of transactions on Tuesday, September 22, the Nigerian equities market continued its positive run with the Nigerian Exchange (NGX) All-Share Index (ASI) gaining 0.18% to close at 250,614.66 points while the market capitalisation increased by N297.21 billion to N162.68 trillion, further lifting the year-to-date (YTD) return to +61.05%. Investor sentiment remained positive, with 36 gainers against 26 decliners.

MPR cut could lift equities demand:

Chief Blakey Ijezie of Okwudili Ijezie & Co said the rate cut would likely further increase equity transactions and push share prices higher as investors seek better returns. He also expects declining fixed-income yields to make equities more attractive.

• “We are going to see a surge in the volume of transactions and an increase in equity prices. There will be more demand for equities than sellers, so prices will adjust upward,” Ijezie said.
• “The fixed-income market will drop. The volume of transactions will decline and investors will migrate to equities to take advantage of what is going on,” he said.
• “The 350-basis-point easing of the MPR is a very significant one. The rate cut to 23 per cent is good for the economy.”
• “Equity investors are already reflecting the rate cut in their decisions, and equity prices should go up.”

Ijezie added that lower borrowing costs should support manufacturers and other businesses by reducing financing expenses, which could eventually translate into lower production costs and moderate prices.

Lower Rates could lift earnings:

Abiodun Ogunniyi of GTI Group similarly described the decision as positive for the real sector after several years of elevated borrowing costs. He said lower rates should improve access to credit and encourage businesses to borrow for production and expansion.

• “The rate cut is a positive development for the real sector. One of the biggest challenges Nigeria has faced over the last three to four years has been high financing costs.”
• “With the rate cut, we should be able to see more access to credit and more people taking credit for production.”
• “The rate cut tends to be very good for consumer goods because financing costs are expected to fall. The market will start pricing that in, and consumption might also go up because more people will have disposable income.”
• “For industries and oil and gas, there is the possibility of credit expansion. Companies in consumer goods, industrial goods and oil and gas should benefit from the lower financing costs.”

However, Ogunniyi noted that commercial banks have been charging as much as 30% to 35% MPR on some products. He expects banks to review their pricing, although the speed of adjustment will depend on competitive conditions.

MPR cut reshapes investment landscape:

The MPR cut comes after Treasury bill yields had already been trending lower. Nairametrics reported on September 21 that the 364-day Treasury bill rate had fallen from 17.59% in August to 16.62% by September 9, strengthening the case for investors to reassess allocations between government securities and equities.

• Nairametrics had also reported that 61 stocks delivered more than 30% in share-price gains by the end of August, including 18 stocks with triple-digit gains. The equities market had begun recovering before the MPC decision following significant volatility linked to OMO activity.
• The Dangote Refinery IPO has also increased retail participation in the Nigerian capital market, according to Ogunniyi, who said more investors are opening stockbroking and CSCS accounts. The offer comprises 4.1 billion shares at N525 each, targeting about N2.15 trillion.
• The MPC reduced the MPR by 350 basis points to 23%, while retaining the CRR at 45% for Deposit Money Banks, 16% for Merchant Banks and 75% for non-TSA public-sector deposits. The Standing Lending Facility was set at 23.50% and the Standing Deposit Facility at 20%.

For equities, the immediate implication is a potentially stronger incentive to move funds towards risk assets as fixed-income returns decline. The longer-term benefit will depend on how quickly lower policy rates translate into cheaper lending, stronger consumer demand and improved corporate earnings.