CBN MPC member warns unchecked spendings could weaken inflation

A member of the Central Bank of Nigeria’s Monetary Policy Committee (MPC), Prof. Murtala Sabo Sagagi, has warned that Nigeria’s efforts to curb inflation could be undermined if fiscal spending is not properly controlled, particularly during politically sensitive periods.

Sagagi made the warning in his personal statement following the 304th MPC meeting held in February, where members reviewed inflation trends, monetary policy decisions, and broader macroeconomic conditions.

He cautioned that recent progress in slowing inflation remains fragile and could be reversed without stronger coordination between fiscal and monetary authorities.

“Close coordination between monetary and fiscal policy is essential. Election-related or politically driven spending could weaken the impact of monetary tightening.

“Increased fiscal releases associated with electoral cycles could reverse disinflation gains. The CBN should maintain dialogue with the fiscal authorities to ensure more responsible spending,” Sagagi said.

On monetary transmission, he noted that high lending rates remain a concern despite policy adjustments by the apex bank.

“The CBN should monitor the pass-through of rate reductions to lending rates closely,” he said.

“The persistence of elevated bank lending rates despite monetary easing would suggest structural impediments in the transmission mechanism that require targeted macroprudential action,” he added.

Sagagi also identified insecurity and structural weaknesses in agriculture as major threats to price stability and economic recovery, noting that food production remains under pressure.

The CBN MOC member warned that insecurity in farming communities continues to disrupt supply chains and reduce agricultural output, while rising production costs are further squeezing farmers despite easing commodity prices.

He also called for stronger financial oversight of security-related spending to improve efficiency and outcomes in addressing insecurity across the country.

The warning comes as the CBN maintains a tight monetary policy stance aimed at stabilising prices following subsidy reforms, exchange rate pressures, and persistent inflationary challenges.

At its 304th MPC meeting in February, the committee cut the Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent from 27 per cent, citing gradual improvements in macroeconomic indicators, particularly inflation.

The committee retained the Cash Reserve Ratio at 45.0 per cent for commercial banks and 16.0 per cent for merchant banks, while keeping the Liquidity Ratio at 30.0 per cent. The Standing Facilities Corridor was also maintained at +50/-450 basis points around the MPR.

However, recent data from the National Bureau of Statistics (NBS) showed that headline inflation rose to 15.38 per cent in March 2026, up from 15.06 per cent in February, underscoring persistent price pressures.

Also, the Governor of the CBN and some members of the MPC equally warned that rising political and election-related spending ahead of the 2027 general elections could undermine the country’s disinflation gains and trigger fresh inflationary pressures.

The warnings were contained in the personal statements of MPC members released by the apex bank on Thursday.

CBN Governor, Olayemi Cardoso, had earlier warned in the MPC communiqué that election-related fiscal spending could threaten the inflation outlook despite the current moderation in prices.

The communiqué signed by Cardoso read, “The outlook indicates that the current momentum of domestic disinflation will continue in the near term. This is premised on the lagged impact of previous monetary policy tightening, sustained stability in the foreign exchange market and improved food supply. However, increased fiscal releases including election-related spending could pose upside risk to the outlook.”

Also, in his personal statement, Cardoso noted “Growing fiscal pressures, from reduced government fiscal headroom and the approaching 2027 election cycle, warrant particular attention given the well-established link between pre-election fiscal expansion and inflation.”

CBN Deputy Governor for Economic Policy, Dr Muhammad Abdullahi, on his part highlighted election-related spending as a major risk to the inflation outlook.

He said, “As political activities intensify ahead of the 2027 elections, increased fiscal injections and consumption spending could elevate demand-side inflation.”

Abdullahi added, “The fiscal deficit has already increased significantly, and election-related spending is likely to exacerbate this trend in 2026 and early 2027.” According to him, stronger fiscal-monetary coordination would be needed to manage the liquidity impact of rising government spending.

Also, the CBN Deputy Governor for Operations, Emem Usoro, warned that the pre-election environment could worsen liquidity conditions and inflation expectations. Usoro said, “Crucially, the pre-election environment increases the risk of liquidity surges, higher FX demand and a drift in inflation expectations.”

She added that the risks justified maintaining tight liquidity conditions despite the moderate rate cut. According to her, “These considerations support small, cautious adjustments and the retention of strong liquidity and prudential buffers.”

Also raising concerns was the newly appointed Deputy Governor, Lamido Yuguda, who said increased fiscal releases and election spending could disrupt the disinflation trend.

Yuguda, who was a former Director General of the Securities and Exchange Commission, noted, “The 75 per cent CRR on non-TSA public deposits remains critical, particularly given the potential for increased fiscal releases as implementation of Executive Order 9 advances.”

He added, “Potential increases in fiscal spending associated with the electoral cycle could generate demand pressures and disrupt the disinflation trajectory.”

Another member of the MPC, Dr Aloysius Ordu, warned that political spending tied to the elections could put pressure on foreign exchange demand and test the resilience of the economy. He said, “Domestically, rising political spending and FX demand pressures associated with the 2027 elections will test the resilience of the economy.”

Ordu added that although reforms such as Executive Order 9 were expected to improve fiscal transparency and strengthen reserves, high debt servicing costs and political-cycle spending remained major concerns for macroeconomic management.

Equally, Bandele Amoo, also expressed concern over excess liquidity from fiscal injections and early political activities ahead of the elections.

He said, “My primary concern is the persistence of excess liquidity from fiscal injections, which could undermine disinflation gains and exchange rate stability.”

Amoo said further that “fiscal spending pressures linked to the 2026 budget cycle, and early political activities ahead of the 2027 elections may heighten risks.”

The next meeting of the Monetary Policy Committee is scheduled to hold on Tuesday, May 19 and Wednesday, May 20, 2026.

This would be four days after the National Bureau of Statistics (NBS) is expected to release the country’s Consumer Price Index report for April 2026 on May 15.

Nigeria’s inflation rate rose to 15.38 per cent in March 2026, marking a reversal in the recent easing trend, as increases in food, transport, and accommodation costs pushed prices higher, making it the first time the headline inflation rate had increased since March 2025.