Today, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its first meeting for 2023.We expect the recently released statistics on the Consumer Price Index (CPI), economic growth, and FX pressures to serve as the core base upon which deliberations will be made. Inflation pressures in the global and domestic markets have been the CBN’s narrative for its recent hawkish stance, as seen in the previous four meetings. The, most recent headline inflation for Dec-2022 showed a deceleration to 21.34% y/y, for the first time in ten months, from 21.47% y/y in Nov-2022. However, we expect the MPC to be concerned with the sharp m/m increase, which lead to a slower-than-expected decline in y/y headline inflation.

Another consideration is the depreciating naira and the inability of the CBN to attract Foreign Portfolio Investments (FPIs). Since its last meeting in Nov-2022, the Naira has lost 3.6% to print at N461.5/$ at the I&E window. However, it appreciated marginally by 0.4% at in the parallel markets to close at N747.0/$. Lastly, dollar supply from FPI flows remain underwhelming despite the recent rate hikes, as real return remains negative and election uncertainties keep investors on the sideline. Lastly, African peers and most advanced economies have continued to hike interest rates to tackle inflation and attract FPI flows (for SSA economies) although the consensus expectation is rate hikes would begin moderating in Q1-2023. Also, the MPC will put in perspective slowing economic growth and downward revisions of growth forecast for the Nigerian economy as fiscal activities wane, election uncertainties build, and global risks remain heightened.

Putting these factors together, we rule out the possibility of a policy easing at this meeting. We expect the MPC will have to decide between a 50bps hike (with a view to reinforce curbing demand-pull inflation) and a HOLD stance to examine impacts of prior hikes as well as avoid "over-tightening" the economy amidst sturdy but weakening growth outlook. In our view, we expect the MPC to revert to a HOLD stance but reckon the decision is close to a coin toss between the most likely outcomes highlighted earlier.