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Nigeria’s Money Supply Surges to N99.23 Trillion Despite Central Bank’s Tightening Efforts

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CBN Governor Olayemi Cardoso to hold MPC Meeting

Nigeria’s central bank is facing a head-scratching situation as the country’s money supply continues to climb despite its efforts to rein it in. In May 2024, Nigeria’s broad money supply (M3) reached a record-breaking N99.23 trillion, a significant increase from N96.97 trillion recorded just a month earlier.

This upward trend comes even as the Central Bank of Nigeria (CBN) implements stringent measures aimed at curbing inflation.

Breaking Down the Numbers

The CBN’s latest money and credit statistics reveal a multifaceted picture. Here’s a closer look at the key data points:

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M3 Growth: M3 has been on a steady rise, with a year-on-year (YoY) growth of a staggering 78% compared to N55.69 trillion in May 2023. This translates to a monthly increase of 2.33% and a quarterly rise of 7.46%. The only exception was a marginal 3% decline in March 2024 compared to the previous month’s record high.

Currency in Circulation: The amount of physical cash circulating within the economy also witnessed an upward trend. In May 2024, currency in circulation reached N3.96 trillion, a 1.02% increase from April and a 2.59% rise from March.

Credit to Private Sector: Credit extended to the private sector, a crucial indicator of economic activity, grew to N74.31 trillion in May 2024, reflecting a 1.92% increase from the previous month.

Net Domestic Assets vs. Net Foreign Assets: An interesting contrast emerges when analyzing net domestic assets and net foreign assets. While net domestic assets surged by 23% to N83.9 trillion in May 2024 compared to April, net foreign assets witnessed a significant decline of 47% to N15.34 trillion during the same period.

Decoding the Drivers

Experts point to a confluence of factors behind this surge in money supply. One key driver is the increase in net domestic assets, which suggests an expansion in government spending or bank lending to the domestic sector. This could be linked to government borrowing to finance budget deficits or support specific economic programs.

Read Also: Nigeria Foreign Investment Surge by 210% in Q1 2024, Highest in Four Years

Monetary Policy vs. Reality

The Central Bank’s tightening measures, aimed at reducing liquidity in the economy and controlling inflation, appear to be having a limited impact. The Monetary Policy Committee (MPC) has been raising interest rates, a traditional tool used to curb inflation. However, the persistent rise in money supply suggests that other factors might be outweighing the tightening measures.

Implications and Solutions

The rising money supply has economic implications that warrant careful consideration. It has the potential to fuel inflation, leading to higher prices for goods and services. This can erode purchasing power and ultimately hinder economic growth.

According to the CBN Governor Olayemi Cardoso, a more holistic approach is needed. He emphasizes the importance of combining monetary policy with fiscal measures and structural reforms. Targeted government spending, particularly in critical sectors like agriculture, electricity, and energy, could be instrumental in promoting long-term investment and sustainable economic growth.

If You Ask Me

The path forward requires a multi-pronged approach. The CBN will likely continue its tightening measures, but it may also need to collaborate with the government to ensure fiscal discipline. Additionally, addressing structural bottlenecks in key sectors can contribute to long-term economic stability. Only through a comprehensive strategy can Nigeria effectively manage its money supply and achieve sustainable economic growth.

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