January 2023 MPC Decision – The Focus is on Reining Inflationary Pressures

Economic Growth Weakens as Oil Production Woes Persist

Insights from the Meeting

The outlook for the global and domestic economy remains uncertain. Key risks are Russia and Ukraine, inflation, and China’s slowdown. Others are tightened financial conditions and the risk of rising global debt levels.

Growth in Nigeria is expected to be subdued in 2023, driven by high insecurity, PMS scarcity, rising debt service costs, and deteriorating fiscal deficit. Therefore, the CBN estimates a 2.88% output growth in 2023 while the World Bank estimates 3% output growth.

The Committee’s Decision

Although the recent inflation reading showed a moderation, the MPC was not convinced about the result, and therefore opined that a Hold or Loose option was not tenable. A Loosening will result in a reversal of the expected further downward of inflation trend. It will also dampen the effort to rein in aggregate demand that rose post-COVID.

A hold option would imply that the MPC changed its stance in response to a one-time marginal inflation decline. Meanwhile, the MPC was unconvinced yet about the result.


We welcome the MPC’s decision, and we believe that it is the right decision at this time, given the current macroeconomic situation. Specifically, high inflation levels are inimical to the economy, and they result in distortions in the foreign exchange market. Meanwhile, an unstable foreign exchange market makes it difficult to attract the required foreign investments to power the economy and create jobs. Although, high rates could also negatively impact the cost of borrowings for local corporates, we believe that the trade-off for a higher real return is more important.

Potential Implications for the Financial Markets

Fixed Income

Our overall outlook for 2023 is a rising yield environment. However, we note the recent decline in fixed-income yields. The MPC’s decision would most likely not reverse the trend in the short term because of a rise in financial system liquidity (read: significant bond maturities and other inflows). However, we expect to see higher yields in late Q2 2023.


We expect the positive momentum in the equities market to persist in the short term, driven by financial system liquidity, as well as expectations for corporate releases and dividend announcements.

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