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

Nigeria's equities market may experience heightened investor interest following the Central Bank of Nigeria's (CBN) decision to lower its benchmark interest rate by 350 basis points to 23%. This rate reduction, announced after the Monetary Policy Committee's 307th meeting, marks the second MPR decrease in 2026 and signifies a notable easing of monetary conditions.

Analysts anticipate that reduced borrowing costs will prompt a shift in investments from fixed-income securities to equities, as yields on government securities decline. As of the market's close on September 22, the Nigerian equities market continued its upward trend, with the NGX All-Share Index (ASI) rising 0.18% to close at 250,614.66 points and market capitalization increasing by N297.21 billion to N162.68 trillion, resulting in a year-to-date (YTD) return of +61.05%.

Investor sentiment remained largely positive, with 36 gainers versus 26 decliners. Chief Blakey Ijezie of Okwudili Ijezie & Co believes the rate cut could further boost equity trading and lift share prices as investors chase higher returns. He also projects that lower fixed-income yields will make equities more appealing. Ijezie added that reduced borrowing costs will benefit manufacturers and other businesses by cutting financing expenses, potentially leading to decreased production costs and modest price increases.

Abiodun Ogunniyi of GTI Group deemed the decision favorable for the real sector after years of high borrowing costs. He noted that lower rates should enhance credit access and motivate businesses to borrow for production and expansion. However, Ogunniyi cautioned that commercial banks have been charging up to 30% to 35% MPR on certain products.

He anticipates banks will adjust their pricing, though the speed of adjustment will depend on competitive dynamics. The MPR reduction follows a downward trend in Treasury bill yields. Nairametrics reported on September 21 that the 364-day Treasury bill rate fell from 17.59% in August to 16.62% by September 9, bolstering the argument for investors to reevaluate their allocations between government securities and equities.

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