Nigeria’s money supply (M3) has grown to nearly N100 trillion, reaching 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 (MoM) growth of 2% from N96.97 trillion last month and a year-on-year (YoY) increase. 78% from N55.69 trillion in the same month a year ago.
This increase comes in the face of the strict measures of the Monetary Policy Committee (MPC) aimed at controlling inflation.
Except for March 2024 when there was a marginal maternal decline of 3% from a record N93.9 trillion in February, M3 has been on a steady rise, defying the tightening efforts of the CBN’s monetary policy.
The figure recorded in May 2024 surpassed the previous level recorded in April after a slight decline in March.
Increase in net domestic assets in May 2024
Nairametrics further observed that the increase in net domestic assets fueled M3 growth in May 2024. CBN data shows that net domestic assets grew by 23% from N68.25 trillion in April 2024 to N83.9 trillion.
Net foreign assets, on the other hand, fell by 47% to N15.34 trillion in May 2024 from N28.73 trillion in the previous month.
M3 includes both net foreign assets and net domestic assets, presenting a holistic picture of the country’s monetary dynamics.
There is also M1 (money that is highly liquid such as cash, checkable (demand) deposits and traveller’s cheques) plus CBN bills, while M2 represents currency outside banks plus demand deposits and quasi-money (investments).
Despite the tightening stance of the MPC, which usually aims to rein in excess liquidity in the economy to control inflation, the money supply has shown elasticity.
Continued growth 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 government procurement of palliatives is a contributing factor to the increase in food prices in Nigeria.
Cardoso stressed the importance of combining monetary policy with fiscal measures and structural reforms, especially in the agriculture, electricity and energy sectors. These steps are crucial for long-term investment and sustainable economic growth in Nigeria.
What you need to know
Emem Usoro, CBN Deputy Governor, Operations Directorate, in her personal statement at the January 2024 MPC meeting 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 increase was attributed to increases in other deposits, transferable deposits and securities of other than shares, with 26.55%, 4.73% and 99.98% respectively.
“On the asset side, net domestic assets (NDA) contributed significantly to broad money growth, while net foreign assets (NFA) restrained broad money growth. The continued rise in inflation has resulted in negative real interest rates .”
She also said that inflationary pressures may persist in the near term due in part to several factors, such as the continued impact of PMS adjustments, import costs, exchange rate pass-through and increased money supply.
An increase in the money supply usually 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, an increase in the money supply can boost consumer spending, boosting demand for goods and services and encouraging further economic activity.
However, a significant increase in the money supply also has the potential to fuel inflation. When more money follows the same amount of goods and services, prices tend to rise.
Nigeria, which has been facing inflationary pressures, could see a further increase in inflation rates if the increase in money supply is not matched by a corresponding increase in output. This can erode purchasing power and affect the cost of living, especially for lower-income families.
The increase in money supply despite the IMC’s austerity measures highlights the complexity of monetary policy management. Under CBN Governor Yemi Cardoso, the interest rate has increased by about 750 basis points from 18.75% to 26.25%. The MPC’s tightening stance is usually aimed at reducing liquidity to control inflation.
However, the current trend suggests that other factors, such as increased government spending, are contributing to the increase in the money supply.
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Image Source : nairametrics.com