The Central Bank of Nigeria (CBN) has alluded that there is a correlation between monthly disbursement from the Federation Account Allocation Committee (FAAC) and liquidity in the banking system stating that it impacts the exchange rates.
The Governor of the CBN, Mr. Yemi Cardoso stated this during the press briefing after the 297th Monetary Policy Committee (MPC) meeting of the CBN where MPR was further increased by 50 basis points to 27.25%.
Furthermore, Mr. Cardoso stated that going forward the apex bank will monitor future disbursement by the FAAC to determine its impact on prices.
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.”
Following the announcement of the removal of petrol subsidy in May 2023, the monthly disbursement by the three tiers of government through the Federal Accounts Allocation Committee (FAAC) has increased significantly owing to non-payment of fuel subsidy.