The Central Bank of Nigeria (CBN) has reported a significant year-on-year increase in broad money supply (M3) by 62.8%, reaching N108.9 trillion, alongside a rise in currency-in-circulation to N4.31 trillion. These factors have spurred a notable growth in Credit to the Private Sector (CPS), which rose by 27.5% to N75.85 trillion in September. Analysts from Cordros Securities expect CPS to continue expanding in 2024, driven by the CBN’s policy on loan-to-deposit ratios, although tighter monetary policies may slow growth.
Additionally, Credit to the Government has reached a record high of N42.02 trillion, marking an 89.8% increase from the previous year. This indicates a growing dependence on domestic banks to finance government deficits. Meanwhile, foreign exchange market inflows have surged, with the Nigerian Autonomous Foreign Exchange Market (NAFEM) seeing a 40.2% rise in inflows to $3.04 billion in October, driven largely by foreign sources. However, local inflows have seen a decline, raising concerns about liquidity and the stability of the naira.
Despite increased foreign investments and inflows, analysts caution that the improved liquidity might not be sustainable due to Nigeria’s challenging macroeconomic conditions. The continuing volatility of the naira and weak foreign exchange market structures could dampen investor confidence. Additionally, the limited foreign currency supply from the CBN poses potential risks to liquidity and overall market stability in the short term.
