Central Bank Governor Warns of Inflation Risks from Rising Liquidity
The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has expressed concerns about the inflationary risks associated with rising liquidity levels in the banking system. He emphasized that increased statutory revenue disbursements through the Federation Account Allocation Committee could undermine the bank’s efforts to reduce inflation if not counterbalanced by strict monetary conditions.
In his personal statement following the 300th Monetary Policy Committee meeting held on May 20, 2025, and published on the CBN’s official website, Cardoso highlighted that while inflation has started to show signs of moderation, new challenges arising from increased liquidity injections require close attention.
“We are also facing increased liquidity injections into the banking system from statutory revenue distributions, which underscores the importance of maintaining tight monetary conditions to prevent renewed inflationary pressures,” he stated.
This warning reflects growing concerns within the central bank regarding the amount of naira liquidity being introduced into the economy, especially as FAAC allocations to the three tiers of government increase.
Recent revenue data further amplifies these concerns. According to figures released by the Federation Account Allocation Committee, a total of N1.818tn was distributed to the Federal, State, and Local Governments as Federation Account revenue for June 2025. This represents a 9.6 per cent increase compared to the N1.659tn shared in May.
The breakdown of the FAAC revenue shows that statutory revenue contributed N1.018tn, while Value Added Tax accounted for N631.507bn. Additional amounts came from the Electronic Money Transfer Levy (N29.165bn) and exchange difference revenue (N38.849bn). An extra N100bn was drawn from non-mineral revenue sources as augmentation.
Of the total amount shared, the Federal Government received N645.383bn, State Governments received N607.417bn, and Local Government Councils got N444.853bn. Additionally, oil-producing states received N120.759bn as 13 per cent derivation revenue.
The Office of the Accountant-General of the Federation reported that gross revenue for June reached N4.232tn, with N162.786bn deducted as cost of collection and N2.251tn allocated for transfers, refunds, interventions, and savings.
The central bank’s concern stems from the fact that higher FAAC disbursements often result in more naira circulating in the economy, which can lead to inflationary pressures, particularly in a fragile recovery environment.
Although the National Bureau of Statistics reports progress in curbing headline inflation, analysts caution that persistent liquidity injections could disrupt this trend. The NBS noted that Nigeria’s headline inflation eased to 22.22 per cent in June 2025, down from 22.97 per cent in May. This marks an 11.97 per cent decline from the 34.19 per cent recorded in June 2024, indicating that monetary tightening is starting to have an impact.
However, on a month-on-month basis, inflation rose slightly to 1.68 per cent in June from 1.53 per cent in May, showing that the pace of price increases has accelerated again after a brief slowdown.
As the CBN prepares for its next Monetary Policy Committee meeting, analysts and market observers are closely watching developments in the fiscal and monetary landscape. Some experts believe the Bank will maintain the Monetary Policy Rate at 27.5 per cent for a third consecutive time, balancing the need to support price stability without stifling economic growth.
A few analysts, however, predict a slight reduction in the rate to 27.25 per cent, along with a potential adjustment to the asymmetric corridor. This could signal the Bank’s intention to gradually calibrate its policy in response to changing macroeconomic conditions.
