How CBN's tight monetary policies hit stock market

The stock market plays an important role in mobilising domestic resources for productive investments.

The all-share index , which measures the performance of listed firms, also dipped by 3.8 per cent from 52, 308.88 to 50,370.25. Nigerian Breweries, Cadbury and Nestle stocks declined in the consumer goods sector. Oando also depreciated in the oil and gas sector.On the percentage decline, the insurance stocks shed 2.75 per cent while, -the banking sector depreciated by 4.43 per cent. Consumer goods declined by 5.92 per cent.The equity market sustained a bullish trend from the beginning of the year, amid rising inflationary pressure and other exogenous factors, appreciating by N5.64 trillion in the first half .

He cited the effect of the macro-economic headwinds on business operations in Nigeria, stressing the need for an active collaboration of fiscal and monetary authorities to reverse the trend. “Rising insecurity in the country has affected the price of goods; the government must address the issue of insecurity so that farmers can go back to their farm,” he said.

According to him, when this slowdown in the entire market is juxtaposed with the rising cost of production, coupled with the disruptions caused by insecurity, the fear of recession may become justified. According to him, monetary tightening due to rising inflation will increase yields in the fixed income market, compelling fund managers to rebalance their portfolios away from equities to fixed income securities.

Although, there is always opportunity in the market in an inflationary period when one understands how to play the market because there are still some stocks that can offer better returns above the inflation level despite the rate hike but the fear of recession is always apparent. Already, the CBN has signalled that the nation’s economy is in the early contraction stage, which may lead to recession if necessary steps are not taken to reverse the trend.

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