The Central Bank of Nigeria has indicated a significant correlation between monthly disbursements from the Federation Account Allocation Committee and liquidity levels in the banking system.
The CBN noted that these disbursements play a crucial role in influencing exchange rates.
The Governor of the CBN, Mr. Yemi Cardoso, made this disclosure at the press briefing after the 297th Monetary Policy Committee meeting of the CBN.
Cardoso furtherstated that apex bank will closely monitor future disbursements from the FAAC to assess their impact on prices.
This proactive approach aims to better understand how these allocations influence inflation and overall economic stability.
He said, “The MPC noted the continued growth in money supply recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures.
“Members were also concerned about the growing level of fiscal deficit but acknowledged the efforts of the fiscal authorities not to resort to Ways and Means financing. Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as it impacts on the exchange rates.
“The committee therefore agreed to increase monitoring of future releases with a view to addressing its effects on price development.
Since the removal of the petrol subsidy in May 2023, monthly disbursements by the three tiers of government through the Federal Accounts Allocation Committee have significantly increased.
The disparity between the foreign exchange rate set in the 2024 budget at N800/$ and the current market rate has positively influenced allocations from thhe FAAC.
It was previously reported that Nigeria’s money supply has surged to a historic high, reaching N99.24 trillion in May 2024.
Data from the Central Bank of Nigeria’s (CBN) money and credit statistics for May shows a 2% month-on-month (M-o-M) increase from N96.97 trillion in the prior month and a 78% year-on-year (Y-o-Y) growth from N55.69 trillion in May of the previous year.
