The Central Bank of Nigeria (CBN) reports an increase in Nigeria’s total money supply (M2) from N65.15 trillion in August 2023 to N66.4 trillion. This represents a 1.91 percent month-on-month (MoM) growth. M2 encompasses all available money in the economy, including physical currency, deposits, and financial instruments. This surge in money supply is attributed to the CBN’s expansive monetary policies in response to the COVID-19 pandemic.
Key Points:
- Steady Growth in Money Supply:
- Since the onset of the COVID-19 pandemic, Nigeria’s money supply has consistently risen due to the CBN’s accommodative monetary approach.
- Significant Year-on-Year Increase:
- Over the past two years, there has been a rapid year-on-year (y/y) growth in money supply, with a 34.6 percent increase recorded.
- Components of Money Supply:
- Certain components of money supply experienced growth and declines:
- Quasi-money (easily convertible financial tools) increased from N40.8 trillion to N41 trillion.
- Net Foreign Assets decreased from N7.1 trillion to N591 billion.
- Net Domestic Assets rose to N66.5 trillion from N58.3 trillion.
- Demand deposits (accessible without prior notice) grew from N21.7 trillion to N23 trillion.
- Currency outside banks saw a modest increase from N2.29 trillion to N2.3 trillion.
- Certain components of money supply experienced growth and declines:
- Surge in Net Domestic Credit:
- Net domestic credit rose from N87.2 trillion to N92.7 trillion, indicating a credit to GDP ratio of 42.7 percent. Credit to both the government and private sector increased.
- Factors Influencing Money Supply:
- Analysts attribute the rise in money supply to the devaluation of the naira following the government’s forex unification in June 2023. This policy effectively added nearly N10 trillion to the money supply.
Impact and Concerns:
- The surge in money supply is associated with challenges like rising inflation, exchange rate pressure, and declining interest rates. As money supply grows, there is an increased risk of inflation, potentially reducing purchasing power.
- A larger money supply may lead to lower interest rates, which could impact the attractiveness of Nigerian assets to foreign investors, given Nigeria’s reliance on dollar imports.
Conclusion: The increase in Nigeria’s money supply reflects the CBN’s efforts to navigate economic challenges amid the COVID-19 pandemic. While this growth may stimulate economic activity, it also raises concerns about inflation and interest rates. The impact of these dynamics on Nigeria’s overall economic stability will be closely monitored.