Liquidity Surge from FAAC Raises Inflation Concerns, Says Cardoso
The Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso, has voiced apprehensions regarding the inflationary repercussions of the burgeoning liquidity levels within the banking system.
He cautioned that the escalation in statutory revenue disbursements via the Federation Account Allocation Committee (FAAC) could jeopardize the Bank’s disinflationary endeavors if not counteracted by more stringent monetary conditions.
This was articulated in his personal statement following the 300th Monetary Policy Committee (MPC) meeting held on May 20, 2025, as published on the CBN website over the weekend.
His statement read, “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.”
His remarks reflect a growing concern within the apex bank about how elevated cash inflows from oil revenue and exchange rate gains are feeding naira liquidity across the system.
The CBN maintained its benchmark Monetary Policy Rate (MPR) at 27.5% during the meeting, holding all other parameters constant. While recent data shows a gradual easing of inflation, the MPC noted that underlying risks persist, particularly from energy price hikes, structural constraints, and exchange rate pressures.
Nairametrics earlier reported that the Federation Account Allocation Committee (FAAC) distributed a total sum of N1.818 trillion to the Federal Government, State Governments, and Local Government Councils as Federation Account revenue for the month of June 2025.
This represents a 9.6% increase—equivalent to N159 billion—when compared to the N1.659 trillion shared in May 2025.
According to the FAAC communiqué, the total distributable revenue of N1.818 trillion comprised N1.018 trillion from statutory revenue, N631.507 billion from Value Added Tax (VAT), N29.165 billion from the Electronic Money Transfer Levy (EMTL), N38.849 billion as Exchange Difference revenue, and an additional N100 billion augmentation sourced from non-mineral revenue.
A statement from the Office of the Accountant General of the Federation (OAGF) also revealed that the total gross revenue available for June stood at N4.232 trillion. From this, N162.786 billion was deducted as the cost of collection, while N2.251 trillion was earmarked for transfers, interventions, refunds, and savings.
Out of the N1.818 trillion distributed, the Federal Government received N645.383 billion, while State Governments shared N607.417 billion. Local Government Councils received N444.853 billion, and an additional N120.759 billion was disbursed to oil-producing states as 13% derivation revenue.
The National Bureau of Statistics (NBS) reports that Nigeria’s headline inflation rate eased to 22.22% in June 2025, down from 22.97% recorded in May 2025.
The NBS data shows that on a year-on-year basis, the headline inflation rate was 11.97% lower than the rate recorded in June 2024, which was 34.19%.
The NBS noted that, on a month-on-month basis, the headline inflation rate in June 2025 stood at 1.68%, representing an increase of 0.15 percentage points from the 1.53% recorded in May 2025.
This indicates that the average price level rose at a faster rate in June compared to May 2025.
Ahead of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) meeting scheduled for July 22, 2025, analysts are broadly projecting a hold on the MPR, currently at 27.5%.
The consensus reflects cautious optimism over moderating inflation and exchange rate stability, tempered by ongoing risks to growth and price pressures in key sectors.
However, a few anticipate a slight rate cut to 27.25%, alongside an adjustment to the asymmetric corridor, to signal a fine-tuning approach as macroeconomic conditions evolve.
