Investors Dump Treasury Bills For Capital Market Instruments, Blame Low Rates

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…Capital Market Index Grows 34.9% In Twelve Weeks

Central Bank of Nigeria’s recent policy on interest rate has pushed an  impressive stock market rally as the Nigerian Stock Exchange All Share Index and Market Capitalisation rose 34.9 per cent in twelve weeks.

Twelve weeks from the day the apex bank effected a cut on interest on savings  in September 1, the benchmark index and Market Capitalisation rose by 34.9 per cent respectively.

The capital market had opened on September 1 with an All-Share-Index of 25,309.37 points and market capitalisation of N13.2trn. However, it closed high at  34,136.82 points and N17.83trn respectively on November 20, based on analysis by . 

The sentiment accelerated as the CBN surprisingly cut money market rates by 100 basis points to 11.5 per cent from 12.5 per cent previously held.

The regulator in a letter dated August 31, 2020 seen by also crashed rates on saving lodged into account to 10 per cent of Monetary Policy Rate which is currently 11.5 per cent. The rate prior to the cut was held at 30 per cent of MPR.

“All deposit money banks are hereby informed that effective September 1, 2020 interest on local currency savings deposits shall be negotiable subject to a minimum of 10 per cent per annum of Monetary Policy Rate.”

This means that when a depositor keeps money in a savings  account, the depositor  will be paid at least 1.15 per cent of the deposit per annum. 

The development has made the money market unattractive for those who keep their money idle in banks awaiting interest with the growing inflation rate which was 13.7  per cent in September and 14.23 per cent in October.

Prior to the effective date of the policy by the apex bank, the All-Share Index and Market Capitalization closed at 25,309.37 and N13.23trn respectively, on August 28, observed.

Africa’s second largest stock exchange by the end of September activities increased with the ASI and market capitalisation rising 3.99 per cent in one month to 26,319.34 points and 13.755trn respectively.

With a  further massive boost by the close of trade on October 30,  the All-Share Index and Market Capitalization surged 16 per cent from the September figures to close the month at 30,530.69 and N15.958trn respectively.

Current official figure shows that the benchmark index and market capitalisation as of November 20, has risen by 11.8 per cent (month on month) to 34,136.82 points and N17.838trn respectively.

Speaking on the development, a Professor of Capital Market Studies, Uche Uwaleke, said, “Some monetary policy measures by the CBN have spurred credit to the real sector while others have crashed money market interest rates.

“The loan to deposit ratio as well as the reduction in the minimum interest rate on savings account to 10 per cent of MPR including the recent MPR reduction by 100 basis points are good examples one can cite.”



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