…Warns excess cash, election spending may fuel inflation
By Chinwendu Obienyi
Ahead of the upcoming Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria, its members are increasingly projecting the naira-for-crude arrangement as a critical buffer against rising fuel costs and renewed inflationary pressures amid growing global geopolitical tensions.
The position comes as concerns mount over the possible impact of escalating conflict in the Middle East on crude oil prices, global trade flows and domestic inflation across oil-import dependent economies, including Nigeria.
For now, US Vice President JD Vance said Washington is making “progress” in Iran peace talks as tensions continue in West Asia.
However, Bandele Amoo, a member of Nigeria’s monetary policy community in his personal statement, warned that the growing tensions involving the United States, Israel and Iran could pose a serious threat to macroeconomic stability globally and potentially reverse recent gains recorded in Nigeria’s inflation outlook.
According to him, disruptions to international trade routes and energy supply chains have triggered fresh increases in petroleum prices and transportation costs, with direct implications for food prices and other essential goods within the domestic economy.
Nigeria recently witnessed gradual moderation in inflation following months of aggressive monetary tightening by the Central Bank of Nigeria (CBN), supported by improved foreign exchange stability and relatively stable domestic energy prices.
However, members of the MPC fear that external oil shocks could quickly reignite inflationary pressures, particularly in an economy where fuel and transportation costs significantly influence the prices of food and basic commodities.
To cushion the economy from such risks, Amoo said, “The government may consider expanding the Naira for crude policy to domestic refineries to increase the capacity of local supplies and domestic utilisation to forestall direct effects on food and general essential goods and services. The earlier food support policy may need to be reconsidered and expanded”.
Expressing concerns over the persistence of excess liquidity driven by fiscal injections into the economy, Amoo warned that such inflows could weaken recent gains in exchange rate stability and inflation control.
“My primary concern is the persistence of excess liquidity from fiscal injections, which could undermine disinflation gains and exchange rate stability”, he said.
According to him, the 75 per cent Cash Reserve Ratio (CRR) imposed on non-Treasury Single Account deposits has helped absorb liquidity linked to public sector spending, but mounting fiscal pressures associated with the 2026 budget cycle and growing political activities ahead of the 2027 elections could intensify inflationary risks.
Although he supported a cautious easing of monetary conditions, Amoo argued that a modest reduction in interest rates could help stimulate credit to productive sectors of the economy, particularly agriculture and commerce during the planting and festive seasons.
Similarly, Lamido Yuguda, another member of the MPC, cautioned that despite the recent moderation in inflation, price levels remain significantly above the medium-term target, making premature or aggressive monetary easing potentially dangerous.
“Inflation, though declining, remains elevated at 15 per cent, well above the medium-term target. Premature or aggressive easing could reverse disinflation gains through exchange rate pass-through or commodity-price shocks,” he warned.
Yuguda noted that global uncertainties continue to weigh on emerging markets, citing geopolitical tensions, oil price volatility and possible shifts in United States monetary policy under incoming leadership at the Federal Reserve as factors that could trigger capital reversals and weaken macroeconomic stability.
He also drew attention to the implementation of Executive Order 9, which mandates the direct remittance of oil and gas revenues into the Federation Account, describing it as a positive fiscal reform that could strengthen government finances and reduce borrowing pressures.
However, he warned that the associated liquidity inflows would require careful coordination between fiscal and monetary authorities to avoid fuelling inflationary demand pressures.
The naira-for-crude initiative allows domestic refineries to purchase crude oil in local currency instead of relying solely on dollar-denominated transactions, thereby easing pressure on foreign exchange demand and supporting local refining operations.
Analysts say the policy could also help stabilise pump prices by insulating the domestic fuel market from severe exchange rate volatility and rising import costs.
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