Nigerian stocks fell by as much as 1.8 per cent, its sharpest fall since the beginning of the year, after the central bank’s monetary policy team took a hawkish stance, upping the benchmark interest rate to 13 per cent.
The move could heighten the pressure on equities considerably in the near term as the promise of improved yields could lure portfolio managers into selling big volumes of stocks and investing the proceeds in fixed income instruments.
Tuesday’s contractionary decision was taken not so much to tame Nigeria’s galloping inflation as to staunch capital outflow from the economy to offshore havens promising better yields, with Nigerian assets losing their attraction to investors from abroad amid recent rate hikes by the U.S. Federal Reserve and European Central Bank.
Increasing interest rate is often effective in fighting inflation driven by higher demand, not in tackling inflation induced by high costs and supply chain disruptions,
