In arriving at the committee’s decision, the CBN governor noted the peculiarity of the challenges faced by the Nigerian economy, including stubborn inflation and fragile economic recovery, both of which require contradicting policy approach. In addition, he noted that the Nigerian economy is not likely to suffer any capital flow reversals as the excess liquidity in developed economies did not flow into the Nigerian economy. Overall, the committee’s decision reflects concern of underlying weakness in the Nigerian economy, prompting a decision to hold all policy parameters rather than tightening to stem inflationary pressures. Clearly, from the governor’s briefing, policy easing was not an option given the subsequent pressures it could place on inflation and exchange rate. The committee opted to sustain use of unorthodox policy measures such as CRR controls to manage inflationary pressures while sustaining targeted interventions in critical sectors to lift economic growth.

Evaluating the impact of the committee’s decision, we note that this would leave a neutral effect on the fixed income environment with the dynamics in that space likely to be driven by system liquidity mechanics and supply of sovereign instruments. Looking ahead to subsequent meetings, we expect economic growth data and inflation reports would shape the committee’s decision in its March meeting. That said, we note the current problems which the CBN is attempting to solve (sluggish growth & stubborn inflation) require more fiscal interventions than monetary policy interventions.