The CBN engages subnational governments and reaffirms commitment to inflation targeting

The Central Bank of Nigeria (CBN) has highlighted the critical role of state governments in ensuring a successful transition to an Inflation Targeting (IT) monetary policy framework, stressing that sustained price stability can only be achieved through coordinated fiscal discipline at all levels of government.
Speaking during a meeting with sub-national stakeholders, facilitated through the Secretariat of the Nigerian Governors Forum, the Deputy Governor responsible for the direction of economic policy, Dr Muhammad Sani Abdullahi, described the shift to inflation targeting as a shift to a more rules-based, transparent and forward-looking monetary framework that requires close collaboration with state authorities.
According to him, while the Central Bank retains the responsibility to implement monetary policy tools to control inflation, fiscal actions, particularly at the subnational level, play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s.
Dr Abdullahi explained that inflation targeting is fundamentally about managing expectations, warning that uncoordinated or expansionary fiscal actions by state governments could strengthen or weaken monetary policy signals. He noted that states influence inflation through multiple channels, including lending decisions, domestic debt accumulation, spending patterns, wages, execution of capital projects, salary arrears, overdrafts, contractor financing and weak coordination on Federation Account Allocation Committee (FAAC) revenue, liquidity management and debt servicing.
“Under an inflation targeting regime, persistent, unpredictable or expansionary fiscal behavior at the subnational level can significantly undermine price stability,” he said.
The deputy governor stressed that the absence of fiscal dominance, where government borrowing pressures force the central bank to monetise deficits, is a key prerequisite for successful inflation targeting. He noted that this principle applies not only at the federal level but also to state governments.
It urged States to reduce reliance on overdrafts and short-term financing, ensure that lending decisions are in line with debt sustainability thresholds, improve budget realism and revenue forecasts, prioritize spending, and better synchronize fiscal calendars with prevailing macroeconomic conditions.
Under the inflation targeting framework, Dr. Abdullahi outlined four key responsibilities for state governments: maintaining fiscal discipline and predictability; pursue responsible borrowing in line with medium-term fiscal frameworks; strengthen coordination on liquidity and debt management; and improve the mobilization of internally generated revenue. It warned that unplanned spending, excessive additional budgets and unsustainable debt accumulation could trigger liquidity shocks and increase inflationary risks.
He reiterated that inflation targeting is a collective national commitment to long-term stability, credibility and prosperity. While the CBN remains responsible for price stability, it said the success of the framework ultimately depends on disciplined fiscal behavior at all levels of government.
By strengthening coordination and incorporating price stability as a shared goal, he added, state governments will support the new framework and lay a stronger foundation for growth, job creation and improved social well-being.
Earlier, in his opening remarks, the Director of the Department of Monetary Policy, Dr. Victor Oboh, described inflation targeting as a “win-win framework” that benefits households, businesses and governments by anchoring inflation expectations, improving policy credibility and reducing macroeconomic uncertainty.
He emphasized that price stability cannot be achieved through monetary policy alone, particularly in a federal system, stressing that subnational fiscal operations, particularly spending, borrowing and cash flow decisions, have direct implications on liquidity conditions and inflation outcomes.
According to Dr Oboh, the engagement was designed to foster mutual understanding, promote open dialogue and deepen collaboration between the apex bank and state governments on the roles, expectations and coordination mechanisms required for successful inflation targeting.
He further noted that subnational governments play a critical role in Nigeria’s macroeconomic landscape, as decisions on wage policies, capital expenditure, debt accumulation and revenue mobilization directly shape aggregate demand and inflation dynamics.
The Director reiterated that the commitment is part of the Bank’s broader partnership with the Nigeria Governors’ Forum (NGF) and state governments, anchored on the shared commitment to embed macroeconomic stability as a collective national objective.
Delivering a goodwill message on behalf of the Director General, NGF, Dr Abdullateef Shittu, the Executive Director, Policy, Strategy and Research at NGF, Prof. Olalekan Yunusa, commended the governor of the Central Bank of Nigeria and the Bank’s leadership for what he described as the strategic foresight behind the engagement, particularly the decision to engage subnational fiscal authorities at an early stage in the transition process.
He noted that the shift from a framework of monetary targets to an inflation target reflects a deliberate commitment to price stability as the central anchor of economic policy. He added that sustainable macroeconomic stability cannot be achieved through monetary policy alone and requires disciplined coordination between all levels of government.
The meeting included a detailed presentation on Nigeria’s transition to inflation targeting. Participants from over 20 states of the Federation, including Commissioners for Finance and Economic Planning, Accountants General, Permanent Secretaries, State Statisticians General and Directors, among others, commended the CBN’s reform agenda, particularly the transition to inflation targeting, and reaffirmed their commitment to supporting the Bank’s efforts.