Naira Gains on Declining Broad Money Supply (M3)

The naira appreciated against the US dollar, with the Central Bank of Nigeria (CBN) reporting a spot rate of N1,529.71 per dollar at the official window on Monday, from N1,539.23 on Friday, reflecting minimal demand pressure.

Last week, the naira gained N8.13 against the US dollar in the Nigerian Foreign Exchange Market, closing at N1,539.23/US$1.

Throughout June, the naira gained by 3.29% from N1581/US$1 at the beginning of the month to N1529/US$1 at close, a N50 decline.

In the parallel market, the naira strengthened by 1.90%, closing at N1,575/US$1.

The naira’s sustained appreciation was supported by a contraction in Nigeria’s broad money supply (M3), which includes currency in circulation, demand deposits, and quasi-money (savings and time deposits). M3 fell to N119.01 trillion in May 2025, a N292.75 billion decrease from N119.30 trillion in April, per CBN data.

This decline indicates tighter monetary conditions, reducing liquidity by N292.75 billion, which curbed speculative demand for dollars in the parallel market and bolstered naira stability.

The reduction in M3 coincided with a drop in inflation from 23.71% in April to 22.97% in May, signaling that less money was chasing available goods, enhancing the naira’s real value and stability.

The CBN’s interventions, including liquidity absorption through Open Market Operations (OMO) bills, further supported these gains. In a recent auction, the CBN allotted N745 billion in OMO bills at 23.99%, offering N600 billion via competitive auction.

Additionally, the CBN injected $1.01 billion into the official foreign exchange market throughout June.

The declining money supply and stabilizing foreign exchange gains, so far demonstrate, the effectiveness of the CBN’s interventions.

The naira’s stability has also boosted foreign investor confidence in Nigeria’s fixed-income market, with foreign portfolio inflows surging 88.5% month-on-month to N118.91 billion in May from N63.07 billion in April. The Nigerian Exchange (NGX) reported a 45.3% increase in total transactions, reaching N700.50 billion from N483.04 billion, reflecting renewed investor interest in Nigerian equities.

Additional Insights

Broad money (M3) grew by nearly N20 trillion year-on-year, a 19.9% increase.

Narrow money (M1), comprising the most liquid assets such as currency in circulation and demand deposits, declined by 1.5%, month-on-month to N40.38 trillion in May, a drop of N624.5 billion, and a 20.9% annual increase from N33.38 trillion in May 2024.

Net foreign assets surged by 198%, from N15.34 trillion in May 2024 to N45.81 trillion in May 2025, while net domestic assets fell by 12.8%, from N83.90 trillion to N73.19 trillion.

The CBN’s monetary tightening measures, including a high Monetary Policy Rate (MPR) and aggressive use of OMO, are yielding results. The May decline in money supply reflects early success in curbing excess liquidity and inflationary pressures, reinforcing the naira’s stability and fostering a positive outlook for Nigeria’s financial markets.

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