Inflation Drives Money Supply to N66.4trn in 2023 – CBN
The Central Bank of Nigeria (CBN) data shows that Nigeria’s total money supply (M2) grew to N66.4 trillion, from N65.15 trillion recorded in August 2023 amid inflation concerns and naira devaluation.
This represents a 1.91 per cent increase month-on-month (MoM).
Total money supply in the economy which is also known as M2, captures the total amount of money available in the economy at a particular time.
This includes physical currency such as coins and banknotes, in addition to various types of deposits maintained by individuals, enterprises and institutions in banks and other financial entities.
The nation’s money supply has steadily been on the rise since the apex bank began its expansive monetary policy stance in the wake of the COVID-19 pandemic.
It is a crucial indicator when evaluating interest rates and potential inflation during a certain timeframe.
Since September 2020, Nigeria’s money supply has doubled from N29 trillion before the February 28, 2020 lockdown.
However, the rise, recorded over the last two years (34.6 per cent) has been rapid year-on-year (y/y).
Analysis of the data showed that certain components of the money supply, namely demand deposits, quasi-money and currency outside banks also witnessed growth and declines.
Specifically, quasi-money, which pertains to financial tools that can be easily converted to cash, surged from N40.8 trillion in the month of August 2023 to N41 trillion, while there was a noticeable drop in Net Foreign Assets which went from N7.1 trillion to just N591 billion.
Furthermore, Net Domestic Assets rose to N66.5 trillion from N58.3 trillion while demand deposits, primarily made up of chequing accounts or funds in banks accessible without prior notice, moved from N21.7 trillion to N23 trillion. Also, currency outside banks observed a relatively modest increment from N2.29 trillion to N2.3 trillion.
There was also a noticeable upsurge in net domestic credit which rose from N87.2 trillion to N92.7 trillion suggesting that net domestic credit to GDP stood at 42.7 per cent. The data also revealed that credit to the government rose to N34.1 trillion from N32.5 trillion while Credit to the private sector rose from N54.7 trillion to N58.6 trillion.
Commenting on the increase in money supply, analysts at Nairametrics attributed the development to the devaluation of the naira following government’s forex unification in June 2023.
According to them, the policy effectively added close to N10 trillion to the money supply. They said, “The recent surge in Nigeria’s money supply aligns with challenges like escalating inflation, pressure on the exchange rate, and diminishing interest rates. As the money supply grows, there’s a rising chance of inflation, leading to decreased purchasing power.
Additionally, a larger money supply might result in declining interest rates, especially when investment assets are in short supply. This could potentially make Nigerian assets less enticing to overseas investors, a concern given Nigeria’s dependence on dollar imports”.
