305th MPC Meeting: CPPE warns against additional monetary tightening

The Centre for the Promotion of Private Enterprise (CPPE) has issued a warning against further monetary tightening ahead of the Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN), scheduled for May 19 and 20, this week.

In a statement on Sunday and signed by its Chief Executive Officer, Dr. Muda Yusuf, the CPPE stated that this warning is crucial because monetary tightening alone cannot effectively address inflation caused by factors such as rising energy costs, logistics inefficiencies, food supply disruptions, and weak infrastructure.

The organisation cautioned that additional monetary tightening could lead to increased financing costs for businesses, thereby weakening investments and further constraining productivity growth.

CPPE identified early signs of liquidity injections related to the 2027 elections, as well as significantly improved Federation Account Allocation Committee (FAAC) disbursements to subnational governments, as serious risks to liquidity management and inflation control.

Given these developments, CPPE believes that the MPC may assess the situation with a focus on its mandate for price stability and inflation management.

The organisation noted: “There is a strong possibility that the Committee may adopt a cautious tightening approach or choose to maintain the current tight monetary stance to manage inflation expectations, reinforce policy credibility, and sustain investor confidence.”

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However, the Centre warned that additional monetary tightening at this time could have severe implications for economic growth, private sector investment, industrial productivity, and job creation.

CPPE emphasised that the nation’s economy remains fragile and structurally constrained, arguing that further tightening of monetary conditions could significantly hinder credit expansion, dampen investment appetite, and undermine the already fragile recovery in the real sector.

The centre also expressed concern that excessively high interest rates would increase the risk of loan defaults, weaken the financial sustainability of businesses, and exacerbate pressures related to sovereign debt servicing.

CPPE called for a more nuanced, pragmatic, and context-sensitive approach to Nigeria’s monetary policy management. They pointed out that the nation’s structural challenges—including infrastructure deficits, weak productive capacity, high unemployment, rising energy costs, and substantial financing gaps—require a monetary policy framework that balances price stability objectives with the need for growth support.

The organisation added, “Implementing further tightening under the current conditions risks imposing disproportionate costs on the productive sector without delivering significant benefits in moderating inflation.

Higher interest rates would increase the cost of capital, weaken manufacturing competitiveness, suppress the growth of small and medium-sized enterprises, constrain household consumption, and slow investment expansion at a time when the economy urgently needs productivity-enhancing investments and job creation.”