Nigeria’s Money Supply Reaches Record ₦106 Trillion Amid Inflation Concerns

In July 2024, Nigeria’s money supply reached a historic high of ₦106.27 trillion, marking a 62.66 per cent increase from the previous year. This surge, despite the Central Bank of Nigeria’s (CBN) stringent monetary policies aimed at curbing inflation, reflects a complex interplay of factors, including increased currency in circulation and a rise in private sector loans.

Data from the CBN shows that month-on-month, the money supply (M3) grew by 4.74 pr cent from ₦101.46 trillion in June 2023.

The significant rise in Nigeria’s money supply can be attributed to multiple factors. The expansion of the M3 money supply, which includes broad money such as cash, bank deposits, and other liquid assets, has been driven by an increase in currency circulation and a notable rise in loans extended to the private sector.

The CBN has been implementing various measures to control inflation, including raising interest rates and reducing liquidity in the banking system. Despite these efforts, the substantial increase in the money supply suggests that other factors, such as fiscal policies and external economic pressures, are influencing the economy.

A reduction in credit to the government by 31.19 per cent indicates a shift in the CBN’s strategy, focusing more on managing private sector growth rather than government borrowing.

The rising money supply in Nigeria poses significant risks for inflation, which has been a persistent challenge for the country. A higher money supply generally leads to increased demand for goods and services, which, if not matched by an increase in production, can result in higher prices.

At the most recent Monetary Policy Committee (MPC) meeting in July 2024, the CBN increased the Monetary Policy Rate (MPR) by 50 basis points to 26.75 per cent, up from 26.25 per cent in June 2024.

The regulator overseeing the banking and financial industry announced on Tuesday that it would issue ₦2.20 trillion in Treasury bills in the fourth quarter of 2024, matching the amount scheduled to mature in September and November this year.

The money supply has increased as a result of the significant expansion of private-sector credit. In July 2024, private-sector credit rose to ₦75.48 trillion on an annual basis. This represents a 33.69 per cent increase from ₦56.46 trillion in June 2023. Bank credit to the private sector also grew by 3.13 per cent month-on-month from June 2024, rising from ₦73.19 trillion.

The strong demand for credit to keep up with the rising cost of goods and services has been cited as the reason for the increase in loans extended to the private sector.

While this is positive for business expansion and economic growth, it also raises concerns about the sustainability of this credit growth. If not carefully managed, it could lead to a strain on the banking sector and have broader economic implications.

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