Nigeria needs stronger monetary transmission to unlock gains of monetary easing — CPPE

Muda Yusuf, director and chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE)

The Centre for the Promotion of Private Enterprise (CPPE) has cautioned that the Central Bank of Nigeria’s (CBN) shift toward monetary easing may fail to stimulate the real economy unless monetary transmission is strengthened to ensure lower lending rates for the real sector and credible fiscal consolidation is advanced to safeguard macroeconomic stability.

Muda Yusuf, the Chief Executive Officer of the CPPE, stated this in a policy brief issued to journalists on Tuesday. He commended the CBN for its measured and data-driven policy adjustment, noting that the easing reflects strengthening macroeconomic performance, including declining inflation, growing reserves, an improving trade balance, and enhanced FX stability.

He however noted that if supported by structural reforms and disciplined fiscal management, the current policy direction could unlock a stronger investment cycle and more durable economic growth.

“Centre for the Promotion of Private Enterprise (CPPE) welcomes the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria to reduce the Monetary Policy Rate (MPR) by 50 basis points to 26.5 percent. The announcement by the Governor, Olayemi Cardoso, marks a continuation of the gradual shift from aggressive monetary tightening toward measured easing.

“This policy direction is appropriate and growth-supportive. It reflects improving macroeconomic fundamentals and reinforces confidence in the economy’s stabilisation trajectory.

“However, for the benefits of monetary easing to be fully realised, two critical issues must be addressed: Strengthening monetary transmission to ensure lower lending rates for the real sector. Advancing credible fiscal consolidation to safeguard macroeconomic stability,” he said.

He explained that a major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy, adding that despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors including: high Cash Reserve Ratio (CRR), which constrains bank liquidity, elevated cost of deposits among others.

For him, unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors.

“Strengthening policy transmission should therefore be a priority. This may require complementary measures to ease liquidity constraints, improve credit-risk frameworks, and reduce distortions in government domestic borrowing patterns. Monetary easing must reach the real economy to deliver meaningful growth outcomes,” he said.

Yusuf also noted that while monetary policy is moving in the right direction, fiscal vulnerabilities remain significant. He said that Nigeria’s elevated public debt levels, persistent fiscal deficits, and ongoing budget financing challenges pose macroeconomic risks.

Debt-service obligations, according to Yusuf have continued to absorb a substantial portion of government revenues, limiting fiscal flexibility. He therefore emphasized that sustainable macroeconomic stability requires stronger non-oil revenue mobilisation, expenditure rationalisation and reduced dependence on high-cost domestic borrowing.

He said that without fiscal consolidation, monetary easing could be undermined by continued fiscal pressures and crowding-out effects in the financial system, adding that policy coordination between fiscal and monetary authorities is therefore essential.

“The gradual easing cycle presents strategic opportunities for investors fixed income. As rates moderate over time, investors in high-yield instruments may benefit from capital appreciation. Active duration management becomes critical.

“Improving macro stability enhances the outlook for agro-processing, manufacturing, export-oriented businesses, logistics, and infrastructure-related ventures. Gradual moderation in financing costs and improved macro sentiment create opportunities for venture capital and private equity investors targeting domestic enterprises.

“If exchange-rate stability and reserve growth are sustained, Nigeria’s financial markets may continue to attract foreign portfolio inflows.

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“Given the significant cost pressures businesses have faced over the past two years — energy, logistics, exchange rate volatility, and high interest rates — even modest monetary accommodation provides psychological and financial relief. However, the real impact will depend on transmission effectiveness,” he said.

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