Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), has raised concerns over the growing liquidity levels in the banking system from statutory revenue distributions, warning that the surge may spike inflationary pressures and trigger a tight monetary measure.
“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 said after a May 20 committee meeting, according to a CBN statement published on its website.
The windfall from oil revenue and exchange rate gains are feeding naira liquidity across the banking system, a situation that could result in money-induced inflationary concerns, countering the efforts of the apex bank to curb rising prices and stabilise the economy.
The Federal Account Allocation Committee (FAAC) distributed N1.81 trillion to the federal, state and local government in June 2025, marking the highest levels on record. The allocation increased by N159 billion month-on-month (m/m) from N1.65 trillion in May.
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The modest m/m increase was primarily driven by an 18 percent m/m rise in statutory revenue collections to over N1 trillion. Also, the inclusion of N100 billion from non-mineral revenue further supported the higher FAAC receipts, while the N18 million m/m rise in electronic transfer levy to N29 billion had only a modest effect.
This is as gross statutory revenue rose sharply to N3.48 trillion in June, up from N2.09 trillion in May, representing a N1.39 trillion m/m increase.
The rebound in revenue saw allocations to the federal government grow by 20 percent or N107 billion to almost N645 billion in the month under review.
Allocations to state and local governments also increased by a modest five percent m/m and six percent m/m to N607 billion and N445 billion, respectively.
Analysts say the record payout could provide temporary relief for subnational governments grappling with inflation and wage pressures.
“If the rise in Nigeria’s crude oil output observed in June is sustained, it could result in a notable improvement in government revenue,” analysts at FBNMerchant Bank wrote in a note on Monday.
FX gains slow as naira stabilises
While there’s a general increase in all sources of revenues, exchange rate gains exerted downward pressure, declining to N39 billion from N77 billion recorded in the prior month on the stability of the naira.
“The lower m/m contribution can be explained by the relative stability of the exchange rate during the review period, as the naira appreciated by 3.5 percent m/m to close at NGN1,532.00 per USD,” FBNMerchant Bank analysts said. “The reduced exchange rate pressure is attributable to the CBN’s sustained sales of FX to support FX market liquidity.”
Between May 2023 and April 2024, one year after the government relaxed currency controls and allowed the naira to be more determined by market forces, a total of N4.23 trillion was shared as exchange gain by FAAC, representing 20.14 percent of N20.99 trillion, which was the gross FAAC revenue for the 12-month period, Agora Policy, a think-tank said.
But as naira continues to maintain its run with projections to hit N1,450 per dollar by the end of 2025, gains from FX may remain subdued.
Inflation to continue moderation – Cardoso
According to the CBN governor, inflation is estimated to further trend downward due to the stability of the exchange rate and lower prices for food, energy, and transportation. He however noted that the country’s macroeconomic outlook is still fraught with elevated risks and uncertainty.
Inflation has slowed for the three consecutive months in June, according to the National Bureau of Statistics (NBS), as efforts by both the fiscal and monetary authorities continue to drive prices downward.
Consumer prices cooled to 22.22 percent year-on-year in June, down from 22.97 percent in the prior month. This fall is the lowest this year and marks the softest inflation reading since April 2023, helped by a stable exchange rate, subdued energy prices and favourable base effect.
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Even as inflation continues to moderate, analysts are divergent as to whether the monetary authorities will hold or begin an easing cycle when it announces its rate decision tomorrow after the 301st MPC meeting.
The monetary authorities have kept interest rates unchanged twice this year after it aggressively increased the borrowing costs all through 2024 to anchor stubbornly high inflation and shore up the value of the naira.
The Monetary Policy Rate (MPR) was raised by a combined 875 basis points to 27.5 percent, marking the highest level in the country. But prices are beginning to slow down and the naira has been largely stable in 2025.
While some analysts are calling for the CBN to further hold interest rates and maintain a rather cautious stance, many others think a token rate cut of between 25 and 50 basis points is necessary to stimulate growth.
