Nigeria’s money supply reached nearly N100 trillion in May 2024, according to the Central Bank of Nigeria (CBN). The total money supply, known as M3, hit a record N99.24 trillion. This is a 2% increase from N96.97 trillion in April 2024 and a 78% jump from N55.69 trillion in May 2023.
This growth comes despite efforts by the Monetary Policy Committee (MPC) to control inflation. The MPC has been implementing strict measures to curb excess liquidity, which generally helps to control rising prices.
Apart from a slight drop in March 2024, when M3 fell by 3% from N93.9 trillion in February, the money supply has been steadily increasing. The May 2024 figure surpassed the previous peak recorded in April 2024.
Rise in Net Domestic Assets
A major factor in the increase was the rise in net domestic assets, which went up by 23% from N68.25 trillion in April 2024 to N83.9 trillion in May 2024. However, net foreign assets declined by 47%, dropping to N15.34 trillion in May 2024 from N28.73 trillion in April.
Components of Money Supply
M3 includes both net foreign assets and net domestic assets. It also encompasses M1, which consists of very liquid assets like cash and checkable deposits, and CBN bills. M2, another component, includes currency outside banks, demand deposits, and quasi-money.
Impact of Government Spending
Despite the MPC’s efforts to tighten the money supply, the increase in M3 suggests that other factors, such as government spending, are driving liquidity growth. During the MPC meeting in March, CBN Governor Olayemi Cardoso pointed out that government purchases of palliatives have contributed to rising food prices in Nigeria.
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Cardoso emphasized the need to combine monetary policy with fiscal measures and structural reforms, especially in sectors like agriculture, electricity, and energy, to support long-term investment and sustainable economic growth.
Challenges of Controlling Inflation
Emem Usoro, CBN’s Deputy Governor, Operations Directorate, noted in January 2024 that broad money supply (M3) expanded by 18.25% at the end of the month. She attributed this growth to a rise in other deposits, transferable deposits, and securities other than shares. She also highlighted that net domestic assets contributed significantly to broad money growth, while net foreign assets had a subdued effect.
Usoro warned that inflationary pressures might persist due to factors like PMS adjustments, import costs, exchange rate fluctuations, and the growth in money supply. The rise in money supply usually means more liquidity in the financial system, which can stimulate economic growth by making it easier for businesses to access credit for expansion and investment.
Potential Inflation Risks
While an increase in money supply can boost consumer spending and economic activity, it also has the potential to fuel inflation. More money chasing the same amount of goods and services can lead to price increases. Nigeria, already dealing with inflation, may see further increases in inflation rates if the growth in money supply isn’t matched by a corresponding rise in production. This can erode purchasing power and impact the cost of living, especially for lower-income households.
The rise in Nigeria’s money supply, despite the MPC’s tightening measures, underscores the complexities of managing monetary policy. Under CBN Governor Yemi Cardoso, the interest rate has been raised by about 750 basis points from 18.75% to 26.25% to control inflation. However, the continuous growth in money supply suggests that factors like increased government spending are still significantly influencing the economy.