MPC Warns Pre-2027 Election Spending Could Reverse Nigeria’s Inflation Gains

Members of Nigeria's Monetary Policy Committee (MPC) have issued a stark warning: fiscal spending related to the upcoming 2027 general elections poses a significant threat to the country's recent progress in curbing inflation. Policymakers are increasingly shifting their focus from external inflationary pressures to domestic fiscal risks, as inflation gradually moderates.

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We must also handle the fiscal-liquidity channel with care: oil prices above the budget benchmark will generate a revenue windfall and larger FAAC allocations, while pre-election spending at the sub-national level could add further liquidity. We have to actively sterilise these injections, otherwise they risk amplifying the very pressures we are working to contain.

While the MPC unanimously decided to retain the Monetary Policy Rate (MPR) at 27.5%, members stressed the necessity of maintaining a tight monetary stance. This is crucial to protect against inflationary pressures that could arise from pre-election spending by various levels of government. Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, specifically cautioned that fiscal liquidity, fueled by rising oil revenues and political spending, could complicate the bank's efforts to ensure price stability.

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The balance of risks remains tilted to the upside. Domestically, disinflation could be interrupted by renewed food price shocks, energy cost pass-through, or pre-election liquidity pressures. Externally, capital flows remain sensitive to global yields and risk sentiment, and a premature easing signal could weaken FX market confidence and revive exchange-rate pass-through pressures. Fiscal pressures, particularly rising public debt and potential election-related expenditure, also represent upside risks to inflation that monetary policy must remain alert to.

"We must also handle the fiscal-liquidity channel with care: oil prices above the budget benchmark will generate a revenue windfall and larger FAAC allocations, while pre-election spending at the sub-national level could add further liquidity," Cardoso stated. "We have to actively sterilize these injections, otherwise they risk amplifying the very pressures we are working to contain."

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Although exchange rates have remained broadly stable for over ten months, imported inflation risks from energy prices, commodity-price shocks and geopolitical tensions remain important. Election-related spending and uncertainty also add a further layer of risk, as higher fiscal injections could raise aggregate demand while weakening investor confidence. As always, I maintain that preserving long-term macroeconomic stability is paramount.

This sentiment was echoed by Deputy Governors Emem Usoro and Muhammad Sani Abdullahi. Usoro highlighted that domestic disinflation could be interrupted by renewed food price shocks, energy cost pass-through, or pre-election liquidity pressures. Abdullahi identified election-related fiscal expansion as a key medium-term risk to macroeconomic stability, noting that higher fiscal injections could boost aggregate demand while simultaneously weakening investor confidence.

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Third, the policy stance must remain alert to fiscal-driven liquidity injections.