The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has raised concerns over the inflationary risks posed by rising liquidity levels in the banking system, warning that increasing statutory revenue disbursements through the Federation Account Allocation Committee could frustrate the bank’s disinflation efforts if not matched with tight monetary conditions.

Cardoso, in his personal statement released after the 300th Monetary Policy Committee meeting held on May 20, 2025, and published on the CBN’s official website on Saturday, noted that while inflation has started to moderate, emerging risks from increased liquidity injections require careful monetary vigilance.

“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,” the CBN governor said.

His remarks signal growing unease within the apex bank about the volume of naira liquidity being released into the economy, particularly as FAAC allocations to the three tiers of government rise.

That concern has grown more pressing in light of recent revenue data. 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, marking a 9.6 per cent increase from the N1.659tn shared in May.

The FAAC breakdown shows that statutory revenue contributed N1.018tn, while Value Added Tax accounted for N631.507bn. An additional N29.165bn was generated from the Electronic Money Transfer Levy, alongside N38.849bn from exchange difference revenue.

Another N100bn was drawn from non-mineral revenue sources as augmentation. From the shared amount, the Federal Government received N645.383bn, State Governments received N607.417bn, and Local Government Councils got N444.853bn.

In addition, oil-producing states received N120.759bn as 13 per cent derivation revenue. The statement from the Office of the Accountant-General of the Federation disclosed that gross revenue for June stood at N4.232tn, of which N162.786bn was deducted as cost of collection and N2.251tn earmarked for transfers, refunds, interventions, and savings.

The concern at the central bank stems from the fact that increased FAAC disbursements typically translate into more naira chasing fewer goods in the economy, a dynamic that could reignite inflationary pressures, especially in a fragile recovery environment.

Although inflation data from the National Bureau of Statistics shows progress in taming headline inflation, analysts warn that persistent liquidity injections could derail that trend. The NBS reported that Nigeria’s headline inflation eased to 22.22 per cent in June 2025, down from 22.97 per cent in May.

This represents an 11.97 per cent decline from the 34.19 per cent recorded in June 2024, suggesting that monetary tightening is beginning to yield results. However, on a month-on-month basis, inflation rose slightly to 1.68 per cent in June from 1.53 per cent in May, indicating that the pace of price increases accelerated again after a brief slowdown.

As the CBN prepares for its next Monetary Policy Committee meeting, analysts and market watchers are closely monitoring developments in the fiscal and monetary landscape.

Some analysts believe the Bank will hold the Monetary Policy Rate at 27.5 per cent for a third consecutive time, given the delicate balance between supporting price stability and not stifling growth.

However, a few analysts are forecasting a mild rate cut to 27.25 per cent, alongside a possible adjustment to the asymmetric corridor, as a signal of the Bank’s intent to calibrate policy gradually in response to evolving macroeconomic conditions.