CPPE Cautions CBN Against Monetary Tightening, Calls for Data Driven Policies 

Dike Onwuamaeze 

The Centre for the Promotion of Private Enterprise CPPE has cautioned the Central Bank of Nigeria (CBN) against any inclination toward further monetary policy tightening in response to inflationary pressures stemming from the prevailing global economic disruption.

The CPPE warned yesterday in its policy brief that monetary tightening would be counterproductive because the present inflationary episode is largely cost-push in nature rather than excess aggregate demand.

The brief, which was titled “Q1 2026 Economic Review and Q2 Outlook: Macro Stability Gains Amid Persistent Cost Pressures and Rising Geopolitical Risks,” said that monetary policy is expected to remain cautious and strongly data-driven, with limited headroom for aggressive rate cuts.

The Chief Executive Officer of CPPE, Dr. Muda Yusuf, said that “there is a risk that the CBN may be inclined toward further tightening in response to prevailing geopolitical and inflationary pressures. 

“Such a stance would be counterproductive, given the fragility of current growth dynamics.

“Notably, the present inflationary episode is largely cost-push in nature—driven by energy prices, exchange rate pass-through, and structural inefficiencies—rather than excess aggregate demand. 

“Consequently, additional monetary tightening would have limited effectiveness in addressing the underlying drivers of inflation, while potentially exacerbating constraints on investment, credit expansion, and overall economic growth.”

Yusuf however said, “the scope for further monetary easing in the near term appears constrained by renewed inflationary pressures, particularly those linked to rising global energy prices. 

“In this context, monetary policy is expected to remain cautious and strongly data-driven, with limited headroom for aggressive rate cuts.”

He said that the first quarter of 2026 represented a significant inflection point for the Nigerian economy, which was marked by notable gains in macroeconomic stability.

Yusuf said that these gains are tempered by persistent structural challenges and mounting welfare pressures. 

He said: “The outlook for Q2 2026 remains cautiously positive but increasingly uncertain, shaped by geopolitical developments, political cycle dynamics, and fiscal execution risks.

“The ongoing Middle East conflict presents a credible risk of stagflation, particularly if the crisis is prolonged or intensifies. 

“Rising global energy prices are likely to amplify inflationary pressures while simultaneously constraining output growth through higher production and logistics costs.  

“This dual impact—elevated inflation alongside weakened growth—poses a significant macroeconomic risk, with adverse implications for business profitability, investment decisions, and overall economic stability.”

He advised that policy priorities should “focus on consolidating macroeconomic stability, addressing structural bottlenecks, and implementing targeted measures to protect vulnerable populations.

“For businesses and investors, success in this environment will depend on resilience, operational efficiency, and strategic positioning.”

The CPPE said that the Nigerian economy in the first quarter of 2026 reflected a blend of improving macroeconomic stability and persistent structural constraints. 

It said that proof of a more stable macroeconomic environment is increasingly evident, underpinned by the cumulative gains from foreign exchange reforms, a sustained period of monetary tightening, and the gradual normalisation of key economic indicators.

It however noted these improvements continue to coexist with significant headwinds. 

“The cost-of-living crisis remains pronounced, energy costs are still elevated, concerns around insecurity persist, and deep-seated structural rigidities continue to constrain productivity and investment.”

Yusuf said that as the economy transitions into the second quarter of 2026, “the outlook is cautiously optimistic but not without considerable risks. 

“The trajectory of macroeconomic stability is vulnerable to external shocks, particularly evolving geopolitical tensions, while the intensifying political cycle ahead of the 2027 elections could pose risks to policy focus and reform momentum. 

“Additionally, fiscal execution constraints remain a critical concern, with implications for budget implementation, infrastructure delivery, and overall economic performance.”

Yusuf said the most notable development in Q1 2026 was the consolidation of macroeconomic stability.

He pointed out that inflation continued on a downward trajectory as headline inflation, which exceeded 24 per cent in early 2025, moderated to 15.15 per cent in December 2025 and further eased to approximately 15.06 per cent by February 2026. 

According to him, exchange rate conditions also improved significantly as the Naira, which experienced substantial volatility during the reform transition period, stabilised within a relatively narrow band of about ₦1,340–₦1,430 per dollar in the official market during Q1 2026. 

He said: “This stability has helped to moderate imported inflation and restore a measure of business confidence.

“External reserves strengthened considerably, rising above $50 billion in early 2026. 

“Growth momentum remained positive. Real GDP growth stood at 4.07 per cent year-on-year in Q4 2025, with full-year growth at 3.87 per cent, supported by recovery in the oil sector and sustained expansion in the non-oil economy. 

“Business activity indicators also remained positive, with Purchasing Managers’ Index (PMI) readings consistently above the 50-point expansion threshold.

“Monetary policy has begun to reflect these improvements. In February 2026, the Monetary Policy Committee reduced the policy rate by 50 basis points to 26.5 per cent, signaling the start of a cautious easing cycle.

“Overall, these developments point to a transition towards relative macroeconomic stability—an essential foundation for restoring investor confidence and improving economic growth outlook.”

Yusuf said that despite the improvement in macroeconomic indicators, the real economy has continued to face significant headwinds, especially the high-cost environment. 

“Energy costs remain a major burden for businesses. Owing to unreliable grid electricity, firms remain heavily dependent on gas, diesel or petrol generators. 

“With fuel prices still elevated, and further pressured by ongoing Middle East tensions, energy has become one of the largest components of production and logistics costs across sectors,” he said.

He added that insecurity has continued to pose serious economic risks as disruptions in key agricultural zones are constraining food supply, sustaining inflationary pressures, and weakening rural economic activity. 

Yusuf, therefore, surmised that the outlook for Q2 2026 would reflect a combination of sustained macroeconomic momentum and rising downside risks.

“Economic growth is expected to remain positive in the near term, but the momentum is likely to moderate amid a confluence of downside risks. 

“Elevated energy costs continue to exert significant pressure on production and operating expenses, while weak consumer demand—driven by eroded purchasing power—remains a binding constraint on output expansion.

“Additionally, the risk of a stagflationary environment is becoming more pronounced, as cost pressures persist alongside fragile growth dynamics. 

“Compounding these challenges are potential policy distractions associated with intensifying pre-election political activities ahead of the 2027 general elections, which could dampen reform momentum and weaken macroeconomic management,” he said