CBN Moves to Curb Pre-election Liquidity Risks, Signals Firm Anti-inflation Stance

Nume Ekeghe

A report by VNL Capital has revealed that the Central Bank of Nigeria (CBN) appears to be taking a proactive stance to rein in inflationary pressures ahead of the 2027 election cycle.

According to the report, early data point to restrained liquidity conditions despite historical trends of pre-election fiscal expansion.

The report titled, “Global Shocks and Market Opportunities: How to Invest in 2026,” noted that money supply growth remained contained at 11 per cent in January 2026, signalling policy discipline by the apex bank at a time when liquidity injections typically begin to accelerate.

The report noted that the CBN has already flagged election-related liquidity as a major inflation risk over the 2026–2027 period, underscoring its awareness of the cyclical pressures associated with political spending.

It stated: “Historical patterns since 2009 show a consistent trend: pre-election cycles are typically associated with sharp increases in money supply. Liquidity growth has often exceeded 20–30per cent, and in some cases 50 per cent, driven by elevated fiscal spending. This has consistently translated into higher inflation with a lag.

“The 2010–11, 2014–15, 2018–19, and 2022–23 cycles all followed this pattern. 2026 presents a similar risk. As a pre-election year, the pressure for fiscal expansion is expected to rise. The Central Bank has already flagged election-related liquidity as a key inflation risk for 2026–2027.”

It added, “Encouragingly, early data suggest a proactive stance. Money supply growth remained contained at 11.0 per cent in January 2026, signalling continued policy discipline. However, this restraint may be difficult to sustain. As political spending intensifies, any re-acceleration in liquidity could quickly reverse disinflation gains and renew pressure on inflation and the exchange rate. Maintaining a tight monetary stance will therefore be critical to preserving macro stability through the election cycle.”

Furthermore, on monetary policy outlook, it stated: “The Cardoso-led Central Bank maintained a tight policy stance through most of 2025, holding the Monetary Policy Rate (MPR) at 27.5 per cent before implementing two modest 50bps cuts after the August peak. This represents one of the slowest normalization cycles among Nigeria’s peer economies. The cautious approach was supported by improved naira stability, with the currency appreciating by 6.1 per cent by year-end, alongside disinflation recorded in 10 of the 12

months of 2025.

“This marked a measured dovish pivot rather than a full policy shift. Liquidity conditions remained tightly managed. The adjustment to the Cash Reserve Ratio (CRR), combined with the introduction of a 75 per cent CRR on non-TSA public sector deposits, ensured that easing did not translate into excess liquidity.

“Money supply control was central to this outcome. M2 growth slowed sharply to 7.7 per cent year-on-year in December 2025, down from over 40 per cent in 2024. This was driven by aggressive sterilisation through Open Market Operations (OMO), sustained Treasury Bills issuance, and strong transmission of higher policy rates into market yields.”