Nigeria’s money supply (M2) surged to a new high of N107.1 trillion in August 2024, marking a 0.75% month-on-month (M-o-M) increase from N106.3 trillion in July and a 5.6% rise from N101.4 trillion in June, according to the latest figures from the Central Bank of Nigeria (CBN).
This sharp rise in liquidity continues to pose challenges for the CBN’s Monetary Policy Committee (MPC) as it grapples with balancing economic growth and controlling inflation.
The money supply has now risen by a whopping 65% in the last year from N64.8 trillion recorded in August 2023.
The components of M2, which include currency outside banks, demand deposits, and quasi-money, are indicative of the growing liquidity in the Nigerian economy.
Currency outside banks stood at N3.8 trillion, while demand deposits reached N31 trillion, and quasi-money surged to N72.2 trillion, reflecting the persistent expansion of money supply despite monetary tightening.
A major drive of the money supply growth is the rise in quasi-money and demand deposits which have also risen by 77% and 43% respectively. Both have components of forex which has been impacted by foreign exchange devaluation. The money supply is reported in naira.
During its meeting in September 2024, the MPC, led by CBN Governor Olayemi Cardoso, raised concerns about the continuous growth in the money supply and its potential to exacerbate inflation.
The committee expressed concern over the rising fiscal deficit, though it acknowledged the government’s commitment to avoid resorting to monetary financing via the Ways and Means channel.
This measure aims to prevent further liquidity injection into the system that could worsen inflationary trends.
While headline inflation declined to 32.15% in August, mainly due to a moderation in food inflation, core inflation remained elevated, driven primarily by rising energy costs.
This divergence between headline and core inflation has alarmed MPC members, who worry about the persistence of inflationary pressures that threaten Nigeria’s economic stability.
The continued growth in money supply, despite the MPC’s tightening stance, highlights the complexity of managing Nigeria’s economic environment.
Money Supply Growth: M2 reached N107.1 trillion in August 2024, up from N106.3 trillion in July and N101.4 trillion in June.