Today, 21 March 2023, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its second meeting for 2023. We expect the recently released statistics on Consumer Price Index (CPI), economic growth, and FX as well as the current cash crunch to serve as the core considerations for the MPC’s deliberation. As seen in the previous five (5) meetings, inflation pressures in the global and domestic markets have been the MPC’s reasons for the recent hawkish stance. Conversely, the prior hikes have not addressed the inflationary trend as the most recent headline inflation for Feb-2022 accelerated to 21.91% y/y from 21.82% y/y in Jan-2023, thus, continuing the northward trajectory of prices in 2023. However, on a month-on-month basis, we noticed a sluggish decline in prices of goods and services as the CPI slightly fell to 1.71% in Feb-23, 16bps lower than 1.87% recorded in January 2023.

Since its last meeting in Jan-2022, the Naira has remained relatively stable, oscillating around N461.0/$ at the I&E window and around N745.0/$ at the parallel markets. Nevertheless, Dollar supply from Foreign Portfolio Investments (FPI) inflows remains underwhelming despite the previous rate hikes, as real return remains negative and post-election uncertainties keep investors on the sideline. It is pertinent to consider the depressed state of the economy caused by the cash crunch and uncertainties from electioneering activities.

Putting these factors together, we rule out the possibility of an interest rate hike at the MPC meeting. Consequently, we expect the MPC to retain the MPR at 17.5%. Our stance emanates from a viewpoint that a "retain decision" by the MPC may revitalize the depressed economy. Similarly, we believe the MPC needs a little more time to examine the impacts of prior hikes on the economy in order to prevent the "over-tightening" of the economy. Conversely, the MPC may decide to increase the MPR by 50bps to reinforce its objective of curbing demand-pull inflation. Aside from that, Policy Makers may decide to align with the current trend of interest rate hikes as evidenced in some developing and advanced economies. However, the consensus expectation is that rate hikes would begin to moderate in Q2-2023.