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 Monetary Policy Committee (MPC) of the central bank will hold its 305th meeting starting Monday, May 19 (today) to Tuesday, May 20, after which the monetary policy decisions will be announced.
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.
Last week, the National Bureau of Statistics (NBS) said the country’s inflation increased to 15.69 per cent in April amid the impact of the continued tension in the Middle East.
According to the chief executive of CPPE, Mr Muda Yusuf, the MPC will need to carefully weigh domestic economic realities alongside global developments before taking any decision on rates.
He stated that geopolitical tensions involving the United States, Israel and Iran were already fueling uncertainty in the global energy market, with rising crude oil prices expected to increase domestic energy, logistics and production costs, noting that the global developments could further intensify inflationary pressures within the Nigerian economy.
On the domestic front, Mr Yusuf said signs of rising liquidity linked to preparations for the 2027 general elections are becoming more evident, explaining 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.
Mr 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.
The CPPE warned that sustained high interest rates could hurt economic growth, weaken industrial productivity and undermine job creation and acknowledged the need to manage inflation expectations
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 Mr 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.
Mr 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.