Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has raised an alarm over the surge in banking system liquidity due to high statutory revenue allocations, warning it could trigger fresh inflationary pressure. Following a Monetary Policy Committee (MPC) meeting held on May 20, Cardoso emphasized the need for continued tight monetary policy to prevent money-induced inflation that may undermine recent efforts to stabilize the economy. He identified the increased inflow from oil revenue and exchange rate gains as key drivers of excess liquidity.
The June 2025 disbursement from the Federation Account Allocation Committee (FAAC) hit a record N1.81 trillion, an increase of N159 billion compared to May’s N1.65 trillion. This spike follows a significant rise in gross statutory revenue to N3.48 trillion from N2.09 trillion the previous month. This unprecedented fiscal distribution is injecting vast sums into the economy, posing a challenge for inflation control and monetary stability.
Despite these concerns, Cardoso expressed cautious optimism that inflation is expected to trend downward, citing the stabilizing effect of the exchange rate and declining prices of food, energy, and transportation. Nonetheless, he maintained that the broader macroeconomic environment remains riddled with risks and uncertainty, which could reverse progress made so far in controlling consumer prices.
Recent inflation data from the National Bureau of Statistics (NBS) show a continued cooling trend, with year-on-year inflation falling to 22.22% in June from 22.97% in May—the lowest level in over a year. This decline has been attributed to a more stable naira, restrained energy prices, and favorable base effects. Still, experts remain split on whether the CBN should maintain its current monetary stance or begin easing interest rates to support growth.
The CBN had raised the benchmark interest rate by a cumulative 875 basis points in 2024, pushing the Monetary Policy Rate (MPR) to an all-time high of 27.5%. With inflation now moderating and the currency stable, some analysts advocate for holding rates steady to solidify gains, while others argue for a minor rate cut—between 25 to 50 basis points—to stimulate the economy without risking another inflationary surge.
Source: Business day