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The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has expressed concern over the inflationary implications of increasing liquidity in the financial system, cautioning that the recent surge in revenue disbursements from the Federation Account Allocation Committee (FAAC) could compromise the Bank’s disinflationary objectives without a corresponding tightening of monetary policy.
In his personal statement following the 300th Monetary Policy Committee (MPC) meeting held on May 20, 2025, and published on the CBN’s official website, Cardoso acknowledged that inflation was beginning to moderate. However, he stressed that renewed liquidity pressures posed significant risks.
“We are also confronted with increased liquidity injections into the banking system from statutory revenue distributions, highlighting the need for tight monetary conditions to avoid renewed inflationary pressures,” Cardoso stated.
The CBN’s concern comes amid a significant rise in FAAC disbursements. According to official data, FAAC distributed N1.818 trillion in June 2025 to the Federal, State, and Local Governments—representing a 9.6% increase from the N1.659 trillion shared in May.
The June disbursement included N1.018 trillion in statutory revenue and N631.5 billion from Value Added Tax (VAT). Other sources included N29.2 billion from the Electronic Money Transfer Levy, N38.8 billion from exchange difference revenue, and N100 billion from non-mineral revenue as augmentation.
The Federal Government received N645.4 billion, State Governments N607.4 billion, and Local Governments N444.9 billion. Oil-producing states also received N120.8 billion as 13% derivation revenue. The Office of the Accountant-General of the Federation reported gross revenue for June at N4.232 trillion, with N162.8 billion deducted as collection cost and N2.251 trillion allocated for transfers, refunds, interventions, and savings.
The central bank’s worry is rooted in the potential macroeconomic impact of excess naira liquidity chasing limited goods, a scenario that could reignite inflationary pressures amid Nigeria’s fragile economic recovery.
Although the National Bureau of Statistics (NBS) reported that headline inflation slowed to 22.22% in June from 22.97% in May—an 11.97% drop from 34.19% in June 2024—month-on-month inflation edged up to 1.68% from 1.53% in May, indicating a renewed uptick in price acceleration.
As the CBN prepares for its next MPC meeting, economists are closely watching policy signals. While some analysts anticipate the Bank will maintain the Monetary Policy Rate (MPR) at 27.5% for the third consecutive time to support price stability, others are projecting a slight cut to 27.25%, potentially accompanied by an adjustment to the asymmetric corridor, signaling a gradual policy recalibration in response to evolving macroeconomic dynamics.
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