(Special for CAFS) Nigerian rate cut expected to boost stock market

Nigerian analysts are hopeful that the reduction in the monetary policy rate by the Central Bank of Nigeria (CBN) will stimulate investment in the country's capital market.

The head of the banking and finance department at the Nasarawa State University, Uche Uwaleke, said the rate reduction from 13 per cent to 11 per cent would boost activities and investments in the stock market.

Uwaleke said in Abuja on Wednesday that the apex bank action, announced Tuesday, would encourage borrowing by small and large business owners, hence improve economic activities and employment.

"The reduction will mean that interest rate will come down and this is good news for companies as it will assist in reducing the cost of capital for businesses that borrow funds," he said.

"Whenever you have liquidity in the financial market, you will have a corresponding increase in the capital market through volume and this will help the capital market to rebound," he added.

"The reduction will also allay fears that the economy will slide into recession because a lot of productive activities will now pick up," he said.

Similarly, the Registrar of the Chartered Institute of Finance and Control of Nigeria, Godwin Echoi, said the move would lead to a significant diversification of the economy as more funds would now be channeled to agriculture and solid minerals.

"This is what we have been clamoring for. The CBN is now ready to grow the economy because people can now access funds at a lower rate," he added.

"But the 11 percent is still high and so we would like to see a reduction to about nine percent so there will be more liquidity in the economy," he said.

The cut to the monetary policy rate, the anchor rate at which the CBN lends money to deposit money banks, was the first time in about six years. Endit