Adopt Cautious Approach To Rate Hikes, Centre Urges CBN

BY OLUSHOLA BELLO AND BUKOLA ARO-LAMBO, Lagos

Ahead of the 305th meeting of the Monetary Policy Committee (MPC), the Centre for the Promotion of Private Enterprise (CPPE) has urged policymakers to adopt a cautious approach to further interest rate hikes, warning that rising political spending ahead of the 2027 elections and growing geopolitical tensions could complicate monetary policy decisions.

The Centre said while inflation control remains critical, excessive monetary tightening could weaken credit growth, discourage private investment and slow Nigeria’s fragile economic recovery.

Director and chief executive officer of CPPE, Dr. Muda Yusuf, said the MPC would need to carefully weigh domestic economic realities alongside global developments before taking any decision on rates.

According to him, geopolitical tensions involving the United States, Israel and Iran are already fueling uncertainty in the global energy market, with rising crude oil prices expected to increase domestic energy, logistics and production costs.

He noted that the global developments could further intensify inflationary pressures within the Nigerian economy.

On the domestic front, Yusuf said signs of rising liquidity linked to preparations for the 2027 general elections are becoming more evident.

He explained that political spending by candidates and parties, combined with increasing allocations from the Federation Account Allocation Committee (FAAC) to state governments, could create fresh liquidity management and inflation challenges for monetary authorities.

“Indications of increased liquidity related to the upcoming 2027 elections are becoming more prominent. Political spending from candidates and parties, coupled with enhanced disbursements from FAAC to state governments, presents important considerations for liquidity management and inflation control,” he said.

Yusuf stated that given the current environment, there is a strong possibility that the MPC may either retain the current policy stance or opt for only moderate tightening.

While acknowledging the need to manage inflation expectations, the CPPE warned that sustained high interest rates could hurt economic growth, weaken industrial productivity and undermine job creation.

The Centre argued that Nigeria’s inflation challenges are largely supply-driven, particularly due to high energy costs, logistics bottlenecks and structural inefficiencies, limiting the effectiveness of aggressive monetary tightening.

According to Yusuf, monetary tightening is generally more effective in tackling demand-pull inflation than supply-side inflation.

He stressed that higher interest rates could increase borrowing costs for businesses, reduce manufacturing competitiveness, constrain small and medium-scale enterprises and discourage investment at a time when the economy requires stronger productivity growth.

The CPPE also warned that elevated rates could heighten the risk of loan defaults and place additional pressure on businesses already struggling with high operating costs.

Yusuf advocated a more balanced and development-focused monetary policy framework suited to the realities of emerging economies like Nigeria, where infrastructure gaps, weak productive capacity, unemployment and financing constraints remain major challenges.

He maintained that sustainable disinflation in Nigeria would depend more on supply-side reforms, energy security, improved logistics, stable exchange rates and increased domestic refining capacity than solely on aggressive monetary tightening.

“The primary focus should be on fostering investor confidence, encouraging productive investments, enhancing output growth and improving the economy’s supply-side capacity while remaining attentive to inflation management,” he said.