March 2023 MPC Decision – Elevated Inflation Levels Remain a Concern

Economic Growth Weakens as Oil Production Woes Persist


The monetary policy committee (MPC), at its just concluded bi-monthly meeting, raised the benchmark rate for the sixth consecutive time since May 2022. The Committee raised the benchmark rate by 50 basis points to 18.00%, whilst keeping all other policy parameters unchanged. The following parameters remained unchanged:

–> Asymmetric Corridor at +100/-700 basis points around the MPR.

–> CRR at 32.50% and;

–> Liquidity Ratio at 30.00%

The Committee’s Decision

The focus of today’s meeting was on taming the high inflation in the economy, but the Committee acknowledged the need to maintain a balance to avoid destabilising the economy with high interest rates, as seen in the advanced markets. Although inflation rate rose to 21.91% in February 2023, the Committee argued that month-on-month increases were lower which suggests that the previous rate hikes were effective.

In addition, the Committee expressed that the need to reduce negative real interest rates was important to keep investors interested in Naira assets and as well stabilise the financial markets – particularly the foreign exchange market.


The decision of the Committee was in line with our expectations. We expect the hawkish trend of the monetary policy authorities to continue, but the pace of increases is expected to be around 25bps – 50bps. During the post-committee conference, emphasis was laid on improving negative real returns – a scenario that we have harped on that the rate hikes might not solve the problem of inflation because the drivers of inflation are structural in nature, thus making Central Bank policy tools less effective in combating inflation. Our position is that higher interest rates could help mitigating the loss of Naira as a store of value, which in turn helps to stabilise the financial markets. The CBN Governor alluded to this today. The Committee, however, added that with the ongoing Naira redesign, currency in circulation reduced significantly, and that it would help to make monetary policies more effective in the future.

Impact on the Financial Markets

Bond prices have declined on a year-to-date basis, and that has driven yields upwards. We expect yields in the fixed income market to remain on an upward trajectory in the near term, while we expect prices in the equities market to be volatile onwards.

We earlier posited that funds inflows into equities would prop prices up in the near term due to increased liquidity in the financial system. Consequent to the global trends and continuous conventional and unconventional tightening, the increased liquidity might get absorbed faster than we initially assumed and the major catalyst to an equities market rally might dissipate.

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