CBN seeks states’ support for inflation targeting policy

By Mariam Abeeb

The Central Bank of Nigeria has urged state governments to embrace fiscal discipline as part of efforts to ensure the success of its planned Inflation Targeting monetary policy framework.

The apex bank said coordinated fiscal actions across all tiers of government remained critical to achieving sustainable price stability and reducing inflationary pressures in the country.

Speaking during an engagement with sub-national stakeholders facilitated through the Nigeria Governors’ Forum Secretariat, the Deputy Governor in charge of Economic Policy Directorate, Muhammad Sani Abdullahi, said inflation targeting represented a transparent and forward-looking monetary framework requiring strong collaboration with state authorities.

He explained that while the CBN retained responsibility for monetary policy implementation, fiscal operations by state governments significantly influenced inflation outcomes in a federal system like Nigeria.

According to Abdullahi, inflation targeting largely depends on managing public expectations, warning that expansionary fiscal policies at the sub-national level could weaken monetary policy signals.

He identified borrowing decisions, debt accumulation, wage bills, capital project execution, contractor financing and weak coordination on Federation Account Allocation Committee receipts as some of the channels through which states affect inflation.

“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” he stated.

The Deputy Governor stressed that the absence of fiscal dominance, where government borrowing compels the central bank to monetise deficits, remained a key condition for successful inflation targeting.

He advised states to reduce reliance on overdrafts and short-term financing while ensuring borrowing aligns with debt sustainability thresholds.

Abdullahi also urged improved budget realism, better revenue forecasting and stronger alignment of fiscal calendars with prevailing macroeconomic realities.

He outlined four responsibilities expected of state governments under the framework, including maintaining fiscal discipline, pursuing responsible borrowing, improving cash and debt management coordination and strengthening internally generated revenue.

He warned that excessive supplementary budgets, unplanned spending and unsustainable debt accumulation could trigger liquidity shocks and worsen inflationary risks.

The CBN official described inflation targeting as a collective national commitment aimed at strengthening economic stability, policy credibility and long-term prosperity.

Earlier, the Director of Monetary Policy Department, Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses and governments through improved policy credibility and reduced macroeconomic uncertainty.

Oboh noted that monetary policy alone could not guarantee price stability, especially in a federal structure where sub-national spending and borrowing decisions directly affect liquidity conditions.

He said the engagement was organised to deepen collaboration and promote mutual understanding between the apex bank and state governments on the implementation of the framework.

Delivering a goodwill message on behalf of the Director-General of the NGF, the Executive Director, Policy, Strategy and Research at the Forum, Olalekan Yunusa, commended the CBN leadership for involving state governments early in the transition process.

Yunusa said the shift from monetary targeting to inflation targeting reflected a deliberate commitment to price stability as the anchor of economic policy.

Participants at the meeting, drawn from over 20 states, reportedly endorsed the CBN’s reform agenda and pledged support for the successful implementation of the inflation-targeting framework.