Nigeria’s money supply nears N100 trillion in May 2024, despite MPC’s tightening efforts 

Nigeria’s money supply (M3) has surged to nearly N100 trillion, hitting a new peak of N99.24 trillion in May 2024. 

The latest money and credit statistics data from the Central Bank of Nigeria (CBN) reveals a month-on-month (M-o-M) increase of 2% from N96.97 trillion the previous month and a year-on-year (Y-o-Y) growth of 78% from N55.69 trillion in the same month of the previous year. 

This growth comes in the face of the Monetary Policy Committee’s (MPC) stringent measures aimed at controlling inflation. 

Aside from March 2024 when there was a marginal M-o-M decline of 3% from a record N93.9 trillion in February, M3 has been on a steady rise, defying CBN’s tightening monetary policy efforts. 

The figure recorded in May 2024 exceeded the previous high recorded in April after the slight decline in March. 

Increase in net domestic assets in May 2024 

Nairametrics further observed that the increase in net domestic assets drove the surge in M3 in May 2024. The CBN data shows that net domestic assets rose by 23% from N68.25 trillion in April 2024 to N83.9 trillion.  

Net foreign assets, on the other hand, declined by 47% to N15.34 trillion in May 2024 from N28.73 trillion in the previous month. 

M3 encompasses both net foreign assets and net domestic assets, painting a holistic picture of the nation’s monetary dynamics. 

It is also M1 (monies that are very liquid such as cash, checkable (demand) deposits, and traveler’s checks) plus CBN bills, while M2 represents currency outside banks plus demand deposits and quasi-money (investments). 

Despite the MPC’s tightening stance, which typically aims to curb excess liquidity in the economy to control inflation, the money supply has shown resilience. 

The consistent increase in M3 suggests underlying factors driving liquidity growth, potentially including government spending. 

During the MPC meeting held in March this year, Olayemi Cardoso, Governor of the CBN, said that government purchases of palliatives are a contributing factor to rising food prices in Nigeria. 

Cardoso stressed the importance of combining monetary policy with fiscal measures and structural reforms, especially in agriculture, electricity, and energy sectors. These steps are crucial for long-term investment and sustainable economic growth in Nigeria. 

What you should know 

Emem Usoro, CBN’s Deputy Governor, Operations Directorate, in her personal statement at the MPC meeting in January 2024 noted that: “Notably, broad money and inflation have moved almost in tandem as broad money supply (M3) expanded by 18.25% at the end of January 2024. This growth was ascribed to a rise in other deposits, transferable deposits, and securities other than shares, by 26.55%, 4.73%, and 99.98%, respectively.  

“From the asset side, Net Domestic Asset (NDA) contributed significantly to broad money growth while Net Foreign Asset (NFA) subdued growth in broad money. The steady rise in inflation has resulted in negative real interest rates.”  

She also said that inflationary pressures may persist in the near term partly due to several factors, such as the lingering impact of PMS adjustments, import costs, exchange rate passthrough, and growth in money supply. 

The rise in money supply typically indicates increased liquidity in the financial system, which can stimulate economic growth. 

With more money circulating in the economy, businesses may find it easier to access credit for expansion and investment. This can lead to higher production, job creation, and overall economic development. 

Additionally, the increase in money supply can boost consumer spending, driving demand for goods and services and encouraging further economic activity. 

However, a significant increase in money supply also has the potential to fuel inflation. When more money chases the same amount of goods and services, prices tend to rise. 

Nigeria, which has been grappling with inflationary pressures, may see a further increase in inflation rates if the growth in money supply is not matched by a corresponding increase in production. This can erode purchasing power and impact the cost of living, particularly for lower-income households. 

The rise in money supply despite the MPC’s tightening measures highlights the complexities of monetary policy management. Under CBN Governor Yemi Cardoso, the interest rate has been hiked by about 750 basis points from 18.75% to 26.25%. The MPC’s tightening stance is typically aimed at reducing liquidity to control inflation. 

However, the current trend suggests that other factors, such as increased government spending are contributing to the growth in the money supply.