Nigerian equities declined for a fourth straight session on Thursday after the Central Bank of Nigeria suggested that it could increase the Cash Reserve Requirement on public funds to 100 per cent.
The increase of the CRR from 12 per cent to 50 per cent in 2013, and from 50 per cent to 75 per cent in January this year has added pressure to the market as banking stocks have been the object of sell-offs since the decision.
On Wednesday, at the Udo Udoma and Belo-Osagie 30th anniversary lecture in Lagos, Sanusi said a 100 per cent CRR increase may be needed to ease pressure on the naira.
He said, “The public sector CRR is 75 per cent. We will probably move to 100 per cent. If you look at the statement of the last MPC meeting, you will see that I was in the minority. I was outvoted. I wanted to increase the private sector CRR to 15 per cent because I think monetary policy conditions are not tight enough.”
Unlike the CBN governor, who defended his decision to increase CRR on both public and private sector funds, operators said investors were not ready to hold unto stocks that were unlikely to bring expected returns.
At the close of trading, the Nigerian Stock Exchange All-Share Index sank by 2.24 per cent or 900.67 basis points to close at 39,378.15 points. It was the biggest decline by the index in many months.
Also, the market capitalisation of the listed equities depreciated by N289bn or 2.24 per cent to close at N12.623tn.
With the exception of the NSE AseM Index, which closed flat, all the sectoral indices fell on Thursday. Only eight equities recorded price appreciation, compared to 53 losers.
There has been a sustained equity sell-off in emerging markets, but analysts had expressed the hope that the earning season would cause equities to rally. That has not been the case.
“I believe today’s losses were so much because of what the CBN governor said with regards to the CRR,” the Chief Executive Officer, Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, said.
According to him, considering the negative impact the earlier increases in CRR had on the market, many people came in on Thursday with so much apprehension.
“And the market lost like it has not lost in a year,” he said, adding that the decision of some foreign portfolio investors to offload their shares was also a factor.
Fakayejo, however, urged investors to take advantage of the situation by coming to take positions.