As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) gears up for its 305th MPC’s meeting, the Centre for the Promotion of Private Enterprise (CPPE) has expressed deep concern about the implications of any additional monetary tightening for economic growth, private sector investment, industrial productivity and employment generation.
The CPPE expressed this concern on Sunday in a press statement titled “305th MPC Meeting: Balancing Inflation Management With Growth Imperatives.”
The Chief Executive Officer of CPPE, Dr. Muda Yusuf, observed in the statement that the evolving domestic macroeconomic realities, such as heightened geopolitical uncertainties and emerging fiscal liquidity risks confronting the Nigerian economy might tempt the CBN to resort to tightening its monetary instruments.
Yusuf said 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.
He also said that early signs of election-related liquidity injections ahead of the 2027 electoral cycle are also becoming increasingly evident.
He further noted that rising political spending by aspirants and political parties, increased election-related expenditures and substantially improved Federation Account Allocation Committee [FAAC] disbursements to sub-national governments present material risks to liquidity management and inflation containment.
All these, which necessitated the recent engagement by the CBN with state governments on the inflationary consequences of elevated fiscal injections, further underscored 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.
However, Yusuf said the CPPE “is deeply concerned about the implications of any additional monetary tightening for economic growth, private sector investment, industrial productivity and employment generation.”
He pointed out that the Nigerian economy remained fragile and structurally constrained.
Therefore, “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,” he said.
The CPPE submitted that monetary policy management in developing economies requires a more nuanced, pragmatic and context-sensitive approach than what is typically obtained in advanced economies.
It said 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.
The CPPE argued that 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.
“Therefore, further tightening under prevailing conditions risks imposing disproportionate costs on the productive sector without necessarily delivering commensurate gains in inflation moderation,” CPPE said.
Yusuf noted that “higher interest rates would increase the cost of capital, weaken manufacturing competitiveness, suppress Small, Medium Enterprises 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,” he said.
Yusuf said that even though prevailing inflationary risks may justify a cautious policy posture by the MPC.
His words: “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.”
Dike Onwuamaeze
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