CPPE warns CBN against excessive tightening ahead 305th MPC meeting

THE Centre for the Promotion of Private Enterprise (CPPE) has warned the Central Bank of Nigeria (CBN) against further aggressive monetary tightening, saying additional interest rate hikes could undermine economic recovery, weaken private sector productivity and worsen pressures on businesses already grappling with structural challenges.

The warning comes ahead of the 305th meeting of the Monetary Policy Committee (MPC), amid growing concerns over rising inflationary pressures, geopolitical tensions and increasing liquidity risks within the Nigerian economy.

In a statement signed by the Chief Executive Officer of CPPE, Dr Muda Yusuf, the economic policy advocacy group said current macroeconomic realities suggest that the MPC may be inclined to either sustain the present tight monetary stance or adopt a cautious tightening bias in order to curb inflation and maintain investor confidence.

According to the CPPE, escalating geopolitical tensions involving the United States, Israel and Iran have already triggered renewed volatility in the global oil market, pushing up crude oil prices and increasing domestic energy costs.

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The group noted that the development is expected to worsen inflationary pressures through higher transportation costs, rising logistics expenses and increased production costs across key sectors of the economy.

“Of immediate significance are the escalating geopolitical tensions involving the United States, Israel and Iran, which have triggered renewed volatility in the global energy market,” the statement 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.”

Domestic liquidity concerns

Beyond external pressures, the CPPE also pointed to mounting domestic liquidity concerns ahead of the 2027 elections.

The organisation said early signs of election-related spending are becoming evident, with rising political expenditures by aspirants and political parties, increased election-related activities and stronger Federation Account Allocation Committee (FAAC) disbursements to states likely to inject more liquidity into the economy.

The CPPE said recent engagements by the CBN with state governments on the inflationary consequences of elevated fiscal injections further highlight official concerns about excess liquidity conditions.

Against this backdrop, the group acknowledged that the MPC may feel compelled to sustain a restrictive policy environment to contain inflation expectations and reinforce policy credibility.

However, it warned that further tightening could significantly weaken credit growth, discourage investment and slow economic activities within the real sector.

“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,” the CPPE stated.

The group argued that Nigeria’s inflation problem is largely supply-side and cost-push driven rather than demand-induced, noting that major drivers of inflation remain energy costs, transportation expenses, logistics bottlenecks and structural inefficiencies.

According to the CPPE, monetary tightening is traditionally more effective in managing demand-pull inflation caused by excess liquidity and consumer demand, but far less effective in addressing inflation arising from supply-side disruptions.

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It warned that higher interest rates would raise the cost of capital, reduce manufacturing competitiveness, suppress small business growth and constrain household consumption at a time when the economy urgently requires productivity-enhancing investments and job creation.

The organisation therefore called for a more balanced and pragmatic monetary policy approach that supports growth while preserving macroeconomic stability.

It urged the monetary authorities to avoid excessive reliance on monetary policy orthodoxy and instead prioritise broader structural reforms aimed at improving productivity, energy security, logistics efficiency, exchange rate stability and domestic refining capacity.

The CPPE maintained that sustainable disinflation in Nigeria would depend more on supply-side reforms and productivity improvements than on aggressive monetary tightening alone.