Concerns over naira, inflation as money supply hits N99.23trn – Business Day


Money supply (M3) hit an all-time high of N99.23 trillion in May 2024 and it is expected to rise further on banks’ capitalisation, raising concerns about the naira and the persistent inflationary pressure.

Data from the Central Bank of Nigeria (CBN) showed that M3 rose by 78.18 percent year-on-year to N99.23 trillion as of May 2024 from N55.69 trillion in May 2023.

Increased money supply raises the inflationary pressure in an economy. It can trigger economic growth but may dampen price stability, economists say.

On a month-on-month basis, money supply increased by 2.33 percent from N96.97 trillion recorded in April 2024. It rose by 7.46 percent quarter-on-quarter from N92.34 trillion in March 2024.

This is despite the monetary tightening of the Central Bank of Nigeria (CBN). The CBN has issued over N1.5 trillion in Open Market Operation (OMO) bills since Governor Olayemi Cardoso took the helm of the affairs.

The step was targeted at stemming inflation and propping up the naira, whose steep decline has unsettled the economy.

“The increased money supply is as a result of the expanded government revenue on the back of the persistent naira depreciation and improved performance of the oil sector,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.

M3 refers to a broad measure of the money supply in an economy. It encompasses various types of liquid assets readily available for spending or investment.

M3 includes M2 (currency, checking deposits, and savings deposits up to two years) along with large time deposits (longer than two years), institutional money market funds, and short-term repurchase agreements (repos).

Olubunmi said there are various implications of the persistent increases in the money supply to the economy.

He said it will further stroke inflationary pressures and reduce the effectiveness of the various measures introduced by the CBN to curtail the rising inflation.

Second, the rising money supply could further increase pressure on the exchange rates, he noted.

“Unfortunately, the money supply is expected to increase further as the banks raise capital to meet the CBN regulation,” he further said.

Responding to the development, Tilewa Adebajo, chief executive officer (CEO) of The CFG Advisory said, “The M3 money supply is close to hitting N100 trillion as at May 2024. It stood at N96.9 trillion in April up from 94.6 trillion in January. How is this impacting inflation control and tightening the stance of CBN with higher interest rates? Can we safely conclude that this is why inflation is not coming down as fast as expected. Is the leakage increasing M3 from the fiscal side due to additional borrowing and expenditure?

“That’s the question we need to ask the CBN. I do not know the answers. We might have to wait for June data and next inflation figures for the right answers,” he said.

Currency in circulation inched up by 1.02 percent to N3.96 trillion in May 2024 compared to N3.92 trillion in April 2024. On a quarterly basis, currency in circulation rose by 2.59 percent from N3.86 trillion in March of the same year.

The central bank data showed that credit to the private sector increased to N74.31 trillion in May 2024, representing 1.92 percent rise above N72.91 trillion in April 2024.

Currency outside banks rose to N3.70 trillion in May 2024. This represents 2.77 percent increase compared to N3.60 trillion in April 2024.