Equities market analysts and operators said the benchmark interest rate cut by the Central Bank of Nigeria (CBN) could redirect liquidity from fixed-income securities into stocks, as moderating yields push investors to seek higher returns in risk assets.
The Central Bank of Nigeria (CBN) lowered its benchmark interest rate by 50 basis points to 27 per cent on Tuesday, in a policy shift that signals the first easing cycle since 2020.
The rate cut comes against the backdrop of sustained disinflation—headline inflation slowed to 20.12% in August, down 176 basis points from July, stable exchange rates, and stronger external reserves.
Together, these conditions provided the monetary authorities with room to loosen policy after years of a tight stance designed to rein in inflation and defend the naira.
For equities investors, the implications are clear: cheaper credit for corporates, improved liquidity in the banking system, and a more attractive risk-return profile relative to government securities.
Mr. Charles Fakrogha, Managing Director/CEO of Lagos-based Maxfund Africa Limited, described the CBN’s action as “a positive development” that will ripple across both the real sector and the capital market.
“If inflation is coming down, then the CBN authorities have no choice but to also cut the monetary policy rate. It’s good for SMEs who want to borrow money, and at the same time, it is good for investors in the capital market,” Fakrogha told Nairametrics.
“Once rates are down, investors will want to switch and do more investment in equities. For me, this is about boosting the economy while improving the macroeconomic environment,” the stockbroker added.
He further stated that CBN’s simultaneous tightening on government deposits—through the introduction of a 75 per cent Cash Reserve Ratio (CRR) on non-TSA funds—should nudge banks to pursue more inclusive banking by mobilising idle cash from Nigeria’s largely unbanked population.
Chief Blakey Okwudili Ijezie, Chartered Accountant and Managing Partner of Okwudili Ijezie & Co., echoed that sentiment, stressing that the symbolism of the rate cut is as significant as the action itself.
“To me, it’s not about the size of the rate reduction, but about the direction the CBN is going. It signals stability and the prospect of growth,” Ijezie stated in a message made available to Nairametrics.
“The NGX will likely react positively in the short run to the liquidity boost, with banks, industrial goods, and consumer goods stocks benefiting the most,” he projected.
Banking stocks are expected to be among the immediate beneficiaries of the CBN’s dovish pivot. By lowering the CRR for deposit money banks to 45 per cent from 50 per cent, the apex bank has freed up additional liquidity for lending and investments. In addition, cheaper borrowing costs via the reduced MPR could stimulate loan growth.
However, analysts caution that the punitive 75 per cent CRR on non-TSA public sector deposits may weigh on banks reliant on government funds. Tier-1 institutions such as GTCO, Zenith, Access, and UBA, with more diversified deposit bases, are expected to weather the adjustment better than smaller lenders.
The industrial goods sector, particularly cement producers, is also poised to gain from lower financing costs. “Cheaper credit lowers the cost of expansion, capacity upgrades, and working capital,” said Ijezie. Dangote Cement, BUA Cement, and Lafarge Africa stand out as potential winners given Nigeria’s infrastructure deficit and the sector’s leverage to economic growth.
Consumer goods companies should also benefit from cheaper borrowing and improved consumer sentiment if disinflation persists, though persistent FX risks remain a headwind for firms dependent on imports.
Despite the policy shift, equities trading on Tuesday remained subdued.
The Nigerian Exchange All-Share Index (ASI) fell 0.40% to close at 140,929.60 points, erasing N326.19 billion in market value and trimming year-to-date gains to 36.9%. Market breadth was negative, with 35 losers against 16 gainers. Sectoral performance was broadly weak, led by Oil & Gas (-1.80%) and Banking (-1.04%).
Analysts, however, expect this lagged reaction to give way to stronger performance in the weeks ahead.
“Lower sovereign yields will cascade into corporate borrowing costs, improve refinancing conditions, and tilt portfolio rebalancing towards equities,” Cordros Capital wrote in its post-MPC report.
The CBN’s policy decision also aligns with global trends. The U.S. Federal Reserve cut its policy rate by 50 basis points last week, narrowing yield differentials and improving the relative attractiveness of Nigerian assets. With the International Monetary Fund recently upgrading global GDP growth projections for 2025, Nigerian equities stand to benefit from renewed foreign portfolio interest, especially given the naira’s relative stability.
Cordros Capital expects headline inflation to trend towards 18 per cent by October, paving the way for another potential 100-basis-point rate cut at the next MPC meeting in November. If realised, such a move could further accelerate the shift from bonds to equities.
Market operators agree that the CBN’s easing stance marks a turning point for Nigerian equities. For banks, industrials, and consumer-facing companies, the prospect of cheaper credit and improved liquidity offers a pathway to earnings growth.
For investors, the increasing spread between fixed income and equities is likely to make the stock market the preferred destination for capital in the months ahead.
Still, risks remain. Inflation, although easing, remains elevated, while FX market volatility continues to loom over corporate balance sheets. The new CRR requirement for government deposits could also dampen liquidity for some banks.
Yet, the broader sentiment is upbeat. “It is good for the economy, good for the capital market, and good for the individual Nigerian,” Fakrogha concluded.
Key Takeaways for Investors
- Policy Rate: CBN cut MPR by 50bps to 27%, the first easing since 2020.
- CRR Adjustment: Bank CRR lowered to 45%, but a 75% CRR is imposed on non-TSA public sector deposits.
Inflation: Eased to 20.12% in August, projected to hit 18% by October.
Sector Winners: Banking (Tier-1 lenders), industrial goods (cement majors), consumer goods.
Market Outlook: Lower yields expected to spur portfolio rebalancing into equities; risks remain from FX and inflation.
