The Central Bank of Nigeria has said it will take measures to withdraw excess liquidity from the financial system if increased spending ahead of the 2027 general elections creates inflationary pressure, affects the naira or threatens recent economic gains.
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CBN Governor Olayemi Cardoso disclosed this on Tuesday while responding to journalists after the Monetary Policy Committee meeting.
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Cardoso said the apex bank had analysed the possible effects of election-related spending on the economy and developed different scenarios to prepare for changes in cash circulation, banking system liquidity and foreign exchange demand.
He said the CBN would closely monitor currency in circulation, monetary aggregates, banking system liquidity and demand for foreign exchange before deciding on appropriate interventions.
The governor said the bank was prepared to use its monetary policy tools to prevent a buildup of excess liquidity from destabilising the economy during the election period.
The CBN’s position comes as political activities increase ahead of the 2027 elections, with candidates and political parties expected to spend more on campaigns, mobilisation, logistics and other activities.
Cardoso also warned against misuse of the naira, saying the availability of banknotes during the election period should not be interpreted as permission to violate existing cash transaction limits.
He said the CBN would work with law enforcement agencies to monitor currency-related activities and take action against abuses.
The governor also encouraged Nigerians to make greater use of electronic payment channels, noting that digital transactions provide records that can improve transparency.
He said the existing limits on cash transactions would remain in force and that the CBN would not ignore violations during the election period.
The warning on liquidity came on the same day the Monetary Policy Committee reduced the Monetary Policy Rate by 350 basis points, from 26.5 per cent to 23 per cent.
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The reduction represents the CBN’s largest rate cut in recent times and is expected to lower borrowing costs and provide support for economic activity.
Despite the rate reduction, Cardoso said the bank remained prepared to use other monetary policy instruments if necessary to manage liquidity and protect price and financial stability.
He said the CBN had carried out extensive analysis of previous election periods and would rely on economic data rather than assumptions when responding to changes in the financial system.
Cardoso also said a recently signed memorandum of understanding between the CBN and the Federal Ministry of Finance would improve coordination between monetary and fiscal authorities.
The agreement covers areas including government cash management, borrowing, debt issuance, liquidity forecasting, foreign exchange flows and inflation management.
The governor said managing the possible economic effects of election-related spending required cooperation between both institutions rather than relying on either the monetary or fiscal authorities alone.
He expressed confidence that increased money circulation during the election period could be managed without reversing progress made in inflation management and foreign exchange stability.
Cardoso also linked Nigeria’s improved position in international market indices to the prospect of increased foreign investment and stronger foreign exchange liquidity.
FTSE Russell recently moved Nigeria from an unclassified market to frontier market status, citing improvements in the ability of foreign investors to complete foreign exchange transactions and repatriate capital.
The CBN governor said international fund managers often use global indices when making investment decisions and that Nigeria’s improved classification could strengthen investor confidence.
He said increased foreign investment could provide additional liquidity in the foreign exchange market, strengthen the country’s external position and improve the transmission of monetary policy.
Cardoso also said he expected Nigeria’s capital market to deepen as the country’s financial system develops, potentially improving the effectiveness of monetary policy over time.
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