Monetary Policy: CPPE Cautions Against Tightening

Ahead of the 305th meeting of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) billed to hold on Tuesday and Wednesday this week, the Centre for the Promotion of Private Enterprise (CPPE) has cautioned against further tightening of monetary policy ahead of its 305th meeting, warning that additional rate hike could weaken economic growth and worsen pressures on businesses.
In a statement signed by the Chief Executive Officer of CPPE, Muda Yusuf, the economic advocacy group said although prevailing inflationary risks may push the MPC towards a cautious tightening posture, aggressive monetary tightening would impose significant costs on the productive sector.
The CPPE noted that the current macroeconomic environment is being shaped by heightened geopolitical tensions involving the United States, Israel and Iran, which have triggered renewed volatility in the global oil market and increased domestic energy costs.
According to the CPPE, “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.”
It also raised concerns over rising election related liquidity injections ahead of the 2027 general elections, stressing that political spending and improved Federation Account Allocation Committee (FAAC) allocations to states could worsen inflationary pressures.
It stated that, “rising political spending by aspirants and political parties, increased election related expenditures and substantially improved FAAC disbursements to subnational governments present material risks to liquidity management and inflation containment.”
CPPE observed that these developments may push the MPC towards maintaining a tight monetary stance or adopting a tightening bias in order to preserve investor confidence and contain inflation expectations.
“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,” the statement said.
However, the it warned that additional tightening could significantly hurt private sector activities and slow economic recovery. “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,” CPPE stated.
It added that excessively high interest rates could worsen loan defaults and increase debt service pressures on both businesses and government. CPPE maintained that aggressive tightening under the current conditions could weaken manufacturing competitiveness, suppress SME growth and constrain household consumption.
“Further tightening under prevailing conditions therefore risks imposing disproportionate costs on the productive sector without necessarily delivering commensurate gains in inflation moderation,” it added.
CPPE therefore called on the MPC to adopt a balanced and pragmatic policy approach capable of preserving macroeconomic stability without undermining growth and investment. “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,” the statement noted.