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The Central Bank of Nigeria (CBN) raised its policy interest rate – Monetary Policy Rate (MPR) – to 17.5% at the January 2023 meeting of its Monetary Policy Committee (MPC), which concluded earlier today. The MPC raised the interest rate by 100 basis points (bps), from 16.5% that was decided at its November 2022 meeting.

The decision today represents the fifth consecutive rate increase since May 2022, when the MPR was raised from 11.5% to 13%, underlining a continuing hawkish monetary stance by the CBN.

The MPC left all the other monetary parameters, including the asymmetric corridor of +100/-700bps around the MPR, the Cash Reserve Ratio (CRR) at 32.5%, and Liquidity Ratio at 30%, unchanged.

The decision to raise the interest rate by 100bps was supported by seven out of the twelve members of the MPC at the meeting. One member voted to raise the rate by 150bps, while four others advocated for a 50bps increase.

According to the CBN, the continued hawkish disposition reflects the view that an over 21.0% year-on-year (YoY) inflation is already hurting growth and that the latest 15bps moderation in the CPI reading is hardly something to celebrate, particularly given the continued surge in month-on-month (MoM) inflationary readings. In addition, the MPC highlighted rising election-related spending, persistent scarcity of Premium Motor Spirit (PMS) – otherwise known as petrol – and naira weaknesses as indicators of further growth-inhibiting inflationary worries down the line.

Addressing other issues, the CBN Governor Godwin Emefiele noted that the deadline for phasing out old naira notes would not be shifted from 31 January 2023. Instead, he explained that CBN had deployed super agents to help facilitate the exchange of old naira notes for new ones in rural areas and across Nigeria. He also restated the potential benefits of improved regulatory capture and the expected efficacy of monetary policy.

CardinalStone Research said the decision of the MPC to sustain monetary policy tightening until inflationary pressures subside adds to recent indicators of higher yields in 2023. These other indicators include the fiscal authority's plan to raise approximately N7 trillion from the domestic market to fund its historically high budgetary deficit amidst lower liquidity expectations for 2023. Given this expectation, CardinalStone Research recommended a short-duration strategy for domestic fixed-income investors.