Nigeria’s money supply has surged to N51.8 trillion in November 2022, resulting in a N7.97 trillion increase year to date.
This was based on the data obtained from the Central Bank of Nigeria (CBN).
The broad money supply had been on an upward trajectory in recent years and at a rapid pace.
The increase in the country’s broad money supply is a measure by the apex bank to mop-up excess liquidity by adopting a hawkish monetary policy stance, by raising the monetary policy rate by 500 basis points between May and November 2022.
NewsBeatng reports that the CBN adjusted the MPR from 11.5% which it adopted in September 2020 to 16.5% in its last committee meeting, in a bid to tackle the rising rate of the inflation rate and persistent depreciation of the exchange rate.
A further look at the data from the apex bank revealed that the increase in Nigeria’s broad money supply was driven by the surge in the net domestic assets (NDA), which gained N11.18 trillion between January and November 2022, while net foreign assets declined by N3.21 trillion in the same period.
Specifically, the CBN’s monetary policy committee attributed the increase in the country’s money supply to increased claims. An excerpt from the November 2022 MPC communique said:
“This growth was driven by increased claims on ‘Other Sectors’ (other financial corporations, public non-financial corporations, and private sector).”
Nigeria’s inflation numbers have responded in the same direction as the money supply movement, touching a 17-year high in November 2022 on the back of ten consecutive months of inflation increases.
The rising cost of goods and services has been attributed to the global energy crisis and the general increase in the prices of food items in the international market, which has also been reflected in Nigeria’s imported inflation numbers.
However, analysts have raised concerns towards the number of interventions by the apex bank into the economy, citing that the excess liquidity in the economy is fuelling inflationary pressure.
According to the CBN, 84% of the total currency in circulation as of November 2022 is out of the banks’ vaults, which is believed to be contributing to Nigeria’s rising inflation rate.
Meanwhile, Nigeria’s economy had maintained a positive growth trajectory since the covid-induced recession in 2020. However, the growth has been at a rather slower pace compared with the increase in supply.
A larger money supply is believed to lower market interest rates, making it less expensive for businesses to borrow and vice versa, helping to spur real growth in the economy. However, recent GDP numbers show slow growth in the Nigerian economy.
According to the NBS, Nigeria’s GDP grew by 2.25% year-on-year in real terms in the third quarter of 2022, lower than the 3.54% and 4.03% printed in the previous quarter and the corresponding period of last year respectively.
Scientific studies have also established a significant relationship between money supply and economic growth, which is not currently playing out in the case of the African giant, following other headwinds keeping productivity below desired levels.
Some of these factors include depreciating exchange rate, ease of doing business, infrastructural deficit, rising prices, and massive brain drains amongst others.
The Central Bank last month announced the designing of the naira for N200, N500, and N1000 denominations, which began circulation on 15th December 2022 and is expected to be in use simultaneously as the old note till 31st January 2023.
The decision according to the apex bank was made in light of growing cases of naira counterfeiting and currency hoarding.