CBN Engages States, Reaffirms Commitment to Inflation Targeting Framework

Oru Leonard 

The Central Bank of Nigeria has reaffirmed the importance of collaboration with state governments in achieving price stability as Nigeria transitions to an Inflation Targeting (IT), monetary policy framework.

Speaking during an engagement with sub-national stakeholders facilitated through the Nigeria Governors’ Forum Secretariat in Abuja, the Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, said the success of inflation targeting depends heavily on fiscal discipline across all tiers of government.

He described the transition as a move toward a more transparent, rule-based and forward-looking monetary policy framework that requires close cooperation between the apex bank and state authorities.

According to Abdullahi, while the CBN is responsible for deploying monetary policy tools to control inflation, fiscal actions by sub-national governments significantly influence inflation outcomes within Nigeria’s federal structure.
“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the subnational level can significantly undermine price stability,” he said.

The Deputy Governor explained that states affect inflation through borrowing decisions, domestic debt accumulation, expenditure patterns, wage bills, capital project execution, salary arrears, overdrafts, contractor financing, and weak coordination on Federation Account Allocation Committee (FAAC) receipts, cash management and debt servicing.

He stressed that the absence of fiscal dominance — where government borrowing pressures compel the central bank to monetise deficits — remains a major requirement for successful inflation targeting at both federal and state levels.

Abdullahi urged state governments to reduce dependence on overdrafts and short-term financing, align borrowing with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal activities with prevailing macroeconomic realities.

He outlined four major responsibilities for states under the inflation-targeting framework: maintaining fiscal discipline and predictability; pursuing responsible borrowing tied to medium-term fiscal frameworks; strengthening coordination on cash and debt management; and enhancing internally generated revenue mobilisation.

He warned that unplanned expenditures, excessive supplementary budgets and unsustainable debt accumulation could trigger liquidity shocks and heighten inflationary pressures.

According to him, inflation targeting represents a collective national commitment to stability, credibility and long-term prosperity, adding that disciplined fiscal behaviour by all levels of government is essential to the framework’s success.

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

Oboh noted that price stability cannot be achieved through monetary policy alone, especially in a federal system where subnational spending, borrowing and cash-flow decisions directly affect liquidity conditions and inflation trends.

He said the engagement was organised to deepen collaboration and mutual understanding between the apex bank and state governments on the coordination mechanisms required for effective implementation of inflation targeting.

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

Yunusa said the shift from monetary targeting to inflation targeting reflects a deliberate commitment to making price stability the central anchor of economic policy, adding that sustainable macroeconomic stability requires disciplined coordination among all tiers of government.

The engagement featured presentations on Nigeria’s transition to inflation targeting and drew participants from over 20 states, including Commissioners of Finance and Economic Planning, Accountant-Generals, Permanent Secretaries, State Statistician-Generals and Directors.

Participants reportedly commended the CBN’s reform agenda and pledged support for the successful implementation of the inflation-targeting framework.