Fasua calls for tailored monetary framework for Nigeria’s MSME-dominated economy

Nigeria’s sustained high interest rates may be doing more harm to growth than to inflation, Presidential economic aide Tope Fasua warned Wednesday, urging policymakers to rethink the country’s tight monetary policy framework.

Speaking at the seventh Africa Emerging Markets Forum in Abuja, Fasua, Special Adviser to President Bola Tinubu on Economic Affairs, said Nigeria’s economic structure — dominated by micro, small and medium enterprises (MSMEs) and a large informal sector — weakens the transmission of policy rate changes to businesses and households.

“There seems to be a slightly unorthodox relationship between interest rates and inflation in Nigeria. The pass-through is not as direct as you would find in many developed countries,” Fasua said, cautioning that prolonged high rates risk “slowing down growth, or caging growth, while we’re trying to manage inflation.”

Fasua noted that limited access to credit, weak links between the informal economy and formal financial markets, and low household bargaining power over essential prices mean conventional tightening may have muted effects on inflation. He pointed to improvements from fintechs and digital banks in payments and deposit mobilisation but said lending remains constrained — a dynamic that can blunt reductions in the Monetary Policy Rate (MPR) from lowering actual lending rates.

“If you reduce the MPR, banks will probably reduce their lending rates by just one percent,” he said, adding that inflation in Nigeria has been driven largely by supply-side constraints and market dynamics rather than excess consumer demand.

Context and recent policy
Fasua’s comments come as the Central Bank of Nigeria (CBN) has moved from an aggressive tightening cycle that peaked in 2024 toward cautious easing since late 2025. The MPR rose from 18.75% in 2023 to 27.5% by end-2024 before the CBN began trimming rates in late 2025; the benchmark rate stood at 26.5% through early 2026 following two 50-basis-point cuts.

The CBN also sharply tightened liquidity in 2024 by raising the cash reserve ratio (CRR) for commercial banks to as high as 50%.

Data and outlook
Inflation, which surged to 34.8% in December 2024, moderated to about 15.9% by June 2026, according to Nairametrics. The National Bureau of Statistics reported real GDP growth of 3.89% year-on-year in Q1 2026; other sources put growth at 4.07% year-on-year in Q4 2025.

Fasua urged policymakers to tailor monetary choices to Nigeria’s specific economic structure rather than rely solely on conventional prescriptions, arguing a more nuanced approach is needed to balance disinflation with support for growth.