The Central Bank of Nigeria (CBN) has warned that rising excess liquidity in the financial system and expansionary election-cycle spending could threaten Nigeria’s fragile macroeconomic stability.
Yemi Cardoso, CBN Governor issued the caution on Tuesday at the National Economic Council (NEC) conference held at the Presidential Villa, Abuja.
Although recent monetary tightening has helped stabilise the exchange rate and moderate inflationary pressures, the apex bank said Nigeria’s recovery remains vulnerable to policy slippages and fiscal expansion ahead of the 2027 elections.
According to the CBN, a significant liquidity overhang persists in the financial system, increasing the risk of renewed inflation and exchange rate volatility.
The bank noted that election cycles historically inject substantial funds into the economy, often weakening monetary policy transmission and reversing reform gains.
Cardoso stressed that monetary tightening alone cannot deliver lasting price stability. “No central bank can sustainably deliver low and stable inflation alone where structural drivers such as food supply shocks, high energy costs and infrastructure deficits dominate price formation,” he said.
He revealed that past intervention programmes totalling about N10.93 trillion, while providing short-term relief, contributed to structural distortions that now complicate liquidity management.
The CBN governor emphasised that durable stability depends on:
- Strong fiscal discipline
- Improved revenue mobilisation
- Efficient public spending
- Supply-side reforms
- Institutional coordination
He added that structural constraints, including shallow financial markets, weak credit transmission and the large informal sector, limit the effectiveness of interest rate adjustments.
Cardoso also highlighted the growing macroeconomic influence of state governments, noting that subnational governments now control roughly half of Federation Account revenues.
He warned that state-level fiscal decisions increasingly affect liquidity, inflation and overall growth outcomes.
The CBN called for:
- Sustainable borrowing frameworks
- Coordinated fiscal behaviour across tiers of government
- Infrastructure investments to reduce structural inflation pressures
The warning underscores the delicate balance between economic stabilisation and political spending as Nigeria moves closer to another election cycle.
Excess liquidity could:
- Reignite inflationary pressures
- Weaken the naira
- Undermine monetary policy credibility
The apex bank signalled its commitment to disciplined liquidity control and orthodox monetary management, while urging fiscal authorities to maintain restraint.
As Nigeria continues its transition toward a more inflation-focused policy framework, the CBN said stability gains will depend on coordinated fiscal action, structural reforms and prudent liquidity management.
