Yemisi Izuora
The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) has been advised to be cautious of the escalating geopolitical tensions involving the United States, Israel and Iran, which have triggered renewed volatility in the global energy market.
The Chief Executive Officer (CEO) of the Center for the Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf, said that the resulting surge in crude oil prices is already transmitting into higher domestic energy costs, with significant implications for inflationary pressures, production costs, transportation, logistics and overall business operating conditions within the economy.
Yusuf, highlighted above points as to what should guide considerations ahead of the forthcoming 305th meeting of the MPC.
In a policy brief titled, “305Th Meeting: Balancing Inflation Management With Growth Imperatives “ he said conversations and discussions at the meeting should be situated within the context of evolving domestic macroeconomic realities, heightened geopolitical uncertainties and emerging fiscal liquidity risks confronting the Nigerian economy.
He also noted that at the domestic level, early signs of election-related liquidity injections ahead of the 2027 electoral cycle are also becoming increasingly evident. Rising political spending by aspirants and political parties, increased election-related expenditures and substantially improved Federation Account Allocation Committee [FAAC] disbursements to subnational governments present material risks to liquidity management and inflation containment.
The recent engagement by the CBN, with state governments on the inflationary consequences of elevated fiscal injections further underscores official concerns regarding excess liquidity conditions in the economy. Against this backdrop, the MPC is likely to evaluate these developments through the prism of its price stability mandate and inflation management objectives.
Accordingly, there is a strong possibility that the Committee may be inclined towards a cautious tightening bias or a prolonged retention of the current tight monetary stance in order to contain inflation expectations, reinforce policy credibility and sustain investor confidence.
However, the Centre is deeply concerned about the implications of any additional monetary tightening for economic growth, private sector investment, industrial productivity and employment generation.
Yusuf noted that, “The Nigerian economy remains fragile and structurally constrained. Further tightening of monetary conditions could significantly weaken credit expansion, dampen investment appetite and undermine the fragile recovery momentum within the real sector. Excessively elevated interest rates also heighten the risks of loan defaults, weaken the financial sustainability of businesses and exacerbate sovereign debt service pressures.”
The CPPE submits that monetary policy management in developing economies requires a more nuanced, pragmatic and context-sensitive approach than what typically obtains in advanced economies.
He added that Nigeria’s structural realities including infrastructure deficits, weak productive capacity, elevated unemployment, high energy costs and substantial financing gaps necessitate a monetary policy framework that carefully balances price stability objectives with growth-supportive imperatives.
“It is equally important to recognise that the current inflationary pressures are predominantly cost-push and supply-side driven. The major inflation drivers remain energy costs, transportation expenses, logistics bottlenecks and structural inefficiencies within the production environment.
Monetary tightening is generally more effective in addressing demand-pull inflation arising from heightened aggregate demand and liquidity expansion. Its effectiveness “in addressing supply-side inflation shocks is considerably more limited.
Further tightening under prevailing conditions therefore risks imposing disproportionate costs on the productive sector without necessarily delivering commensurate gains in inflation moderation.” he said.
Yusuf, also warned that higher interest rates would increase the cost of capital, weaken manufacturing competitiveness, suppress SME growth, constrain household consumption and slow investment expansion at a time when the economy urgently requires productivity-enhancing investments and job creation.
The CPPE therefore advocates a carefully calibrated and balanced monetary policy stance that preserves macroeconomic stability while avoiding excessive tightening capable of undermining economic recovery and private sector resilience.
The overarching policy priority should be to sustain investor confidence, support productive investments, stimulate output growth and strengthen the economy’s supply-side capacity while maintaining vigilance on inflation management.
In the final analysis, while prevailing inflationary risks may justify a cautious policy posture by the MPC, the CPPE strongly urges the monetary authorities to avoid excessive reliance on monetary policy orthodoxy in managing what is fundamentally a structurally-driven inflation environment.
Sustainable disinflation in Nigeria will depend far more on improvements in productivity, energy security, logistics efficiency, exchange rate stability, domestic petroleum refining capacity and overall supply-side reforms than on aggressive monetary tightening, he said.