Muda Yusuf, a renowned economist, has warned that any rate hike could hurt economic growth, weaken businesses and do little to address Nigeria’s inflation problem.
His warning comes ahead of the Central Bank of Nigeria (CBN) 305th Monetary Policy Committee (MPC) meeting scheduled for May 19–20, 2026, in Abuja.
In a statement issued on Sunday, May 17, Yusuf, the chief executive officer of Centre for the Promotion of Private Enterprise (CPPE), said that although inflation risks remain, raising interest rates further could worsen conditions for businesses and the wider economy.
According to him, Nigeria’s economy remains fragile and burdened by structural challenges, making excessive monetary tightening risky.
“Further tightening of monetary conditions could significantly weaken credit expansion, dampen investment appetite and undermine the fragile recovery momentum within the real sector,” he said.
He warned that higher interest rates would increase borrowing costs, raise the risk of loan defaults, weaken businesses’ financial health and put additional pressure on government debt servicing.
He argued that Nigeria’s inflation problem is driven largely by supply-side and cost-related factors, which monetary tightening alone cannot effectively solve.
“It is equally important to recognise that the current inflationary pressures are predominantly cost-push and supply-side driven,” Yusuf said.
He identified energy costs, transportation expenses, logistics bottlenecks and structural inefficiencies as the main drivers of inflation.
He explained that monetary policy tools are generally more effective in dealing with demand-driven inflation caused by excess spending and liquidity, but less effective when inflation is driven by production and supply challenges.
“Further tightening under prevailing conditions therefore risks imposing disproportionate costs on the productive sector without necessarily delivering commensurate gains in inflation moderation,” Yusuf said.
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He stressed that any rate increase would raise the cost of capital, weaken manufacturing competitiveness, slow the growth of small businesses, reduce household spending and discourage investment at a time when Nigeria needs stronger productivity and job creation.
The CPPE boss also raised concerns over rising geopolitical tensions involving the United States, Israel and Iran, warning that renewed volatility in the global oil market could push up domestic energy costs and fuel inflationary pressures.
He noted that increasing political spending ahead of the 2027 elections, as well as stronger Federation Account Allocation Committee (FAAC) disbursements to states, could also complicate liquidity management and inflation control.
Despite these pressures, he urged the MPC to adopt a balanced policy approach that supports growth while maintaining price stability.
“The Nigerian economy remains fragile and structurally constrained,” Yusuf said, adding that Nigeria requires “a more nuanced, pragmatic and context-sensitive approach” to monetary policy than what is typically used in advanced economies.
The CPPE boss also urged monetary authorities to avoid relying too heavily on aggressive rate hikes to tackle what he described as a structurally driven inflation environment.
“Sustainable disinflation in Nigeria will depend far more on improvements in productivity, energy security, logistics efficiency, exchange rate stability, domestic petroleum refining capacity and overall supply-side reforms than on aggressive monetary tightening,” Yusuf added.
Pinnacle Daily reports that the upcoming MPC meeting follows months of consecutive rises in inflation figures reported by the National Bureau of Statistics (NBS), amid growing uncertainty in global energy markets.
At its 304th MPC meeting, held in February, the CBN cut the benchmark interest rate by 50 basis points to 26.5 per cent, marking the second rate reduction under the leadership of CBN Governor Olayemi Cardoso.
Explaining the decision at the time, Cardoso said it followed “a balanced evaluation of risks to the outlook”, supported by the delayed effects of previous monetary tightening, exchange rate stability and improved food supply.
The MPC also retained the Standing Facilities Corridor around the Monetary Policy Rate at +50/-450 basis points and kept the Cash Reserve Requirement for deposit money banks at 45 per cent, merchant banks at 16 per cent, and non-TSA public sector deposits at 75 per cent.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X