* Central bank cuts benchmark rates
* Overnight lending rates stays low at 0.5 pct
* Analysts expects industrial stocks to gain
(Adds stock market, more analysts comments, background)
By Oludare Mayowa and Chijioke Ohuocha
LAGOS, Nov 25 Nigeria naira and bond yields fell
sharply on Wednesday while stocks rose, a day after the central
bank announced a surprise interest rate cut aimed to stimulate
lending in Africa's biggest economy, traders said.
Nigeria's central bank cut benchmark interest rate to 11
percent from 13 percent on Tuesday, its first reduction in the
cost of borrowing in more than six years. The continent's top
oil producer has been hard hit by a plunge in crude prices over
the last year.
The stock market, which has the second-biggest
weighting after Kuwait on the MSCI frontier market index
, erased seven days of losses to climb to 27,662
points following the rate cut. The index has fallen 20.4 percent
so far this year.
"On the back of the reduction in policy rates ... investors
are reconsidering investment in the equities market to earn
higher return," said Ayodeji Ebo, head of research at Afrinvest.
"We anticipate further moderation in bond yields."
He expected stocks in the industrial sector such as Dangote
Cement and Lafarge Africa to gain from
the liquidity surge as infrastructure projects boom. Ebo said
the rate cut may hurt bank earnings as consumer firms reel from
Yield on the most liquid 5-year bond fell 264
basis points to a five-year low of 7 percent while the benchmark
20-year bond closed 150 basis points down at 10.8
percent on Wednesday, traders said.
Bond yields had traded above 11 percent across maturities
prior to Tuesday's rate decision, with the 2034 bond trading at
The central bank has been injecting cash into the banking
system since October in a bid to help the economy. Banking
system credit stood at 290 billion naira ($1.5 bln) as of
Wednesday, keeping overnight rates as low as 0.5 percent
Samir Gadio, head of Africa strategy at Standard Chartered
Bank said bond holders could be exposed to future losses if the
interest rate easing cycle suddenly ends with inflation
currently trading 9.3 percent below the yields..
The rate cut also weakened the naira on the
unofficial market, which fell 0.8 percent to 242 to the dollar.
The currency is pegged at 197 naira on the official market.
Non-deliverable currency forwards, a derivative product used
to hedge against future exchange rate moves, indicated markets
expected the naira's exchange rate at 235.56 to the dollar in 12
months' time - the strongest level in five months - and compared
to 245.25 at Tuesday's close
"Our economists still believe a devaluation will happen in a
couple of quarters but I think they have had opportunities,"
said Luis Costa, head of CEEMEA debt and FX strategy at Citi.
($1 = 199.00 naira)
(Additional reporting by Karin Strohecker in London; Editing by