In a significant economic development, Nigeria’s money supply (M3) soared to N108.95 trillion in September 2024, marking a 62.8% increase compared to the same month last year. This growth comes despite the Central Bank of Nigeria’s (CBN) efforts to tighten monetary policy to combat inflation and manage liquidity.
The latest data from the CBN indicates that the money supply rose by 1.6% from N107.19 trillion in August 2024. This persistent rise highlights the resilience of Nigeria’s economy even as the Monetary Policy Committee (MPC) strives to implement measures to curb excess liquidity.
The components of M3 include both net foreign assets and net domestic assets, offering a comprehensive view of the country’s monetary situation. Notably, net domestic assets increased by 54.6% year-on-year, indicating robust lending activity, while net foreign assets saw a staggering 97.9% year-on-year rise.
Despite the MPC’s restrictive approach, which is typically designed to reduce liquidity and control inflation, the money supply continues to grow, suggesting various underlying factors at play, including government spending.
Economic Context and Challenges
CBN Governor Yemi Cardoso, who assumed office in September 2023, emphasized the need for vigilance in managing liquidity to prevent worsening inflationary pressures. During a recent MPC meeting, he acknowledged the need to balance liquidity growth with measures to stabilize the naira and address foreign exchange demand.
MPC member Aku Pauline Odinkemelu voiced concerns regarding the risks of excessive liquidity contributing to inflation. She pointed out that fiscal allocations are influencing the money supply, potentially threatening monetary policy effectiveness if not managed carefully.
Lamido Abubakar Yuguda also addressed the implications of rising money supply, linking it to the depreciation of the currency. He warned that elevated liquidity could exacerbate inflationary risks, necessitating tighter monetary measures to stabilize the economy.
Implications for the Economy
The increase in money supply typically suggests enhanced liquidity, which can spur economic growth by facilitating easier access to credit for businesses. However, without a corresponding rise in production, this can lead to inflationary pressures, eroding purchasing power and disproportionately affecting lower-income households.
As Nigeria navigates these complex monetary dynamics, the challenge remains to balance growth with stability, ensuring that economic recovery does not come at the cost of escalating inflation.
