Nigeria’s broad money supply (M3) surged to N110.98 trillion in January 2025, marking a 17.3% year-on-year (YoY) increase from N94.61 trillion recorded in January 2024.
This sharp rise underscores the growing liquidity in the economy, driven by increases in both net foreign assets (NFA) and net domestic assets (NDA).
The latest figures, released by the Central Bank of Nigeria (CBN), provide critical insights into the country’s monetary expansion.
However, a notable omission in the report is the absence of December 2024 data, leaving a crucial gap in understanding monetary movements during the peak holiday spending season.
The surge in money supply comes at a pivotal time as the Monetary Policy Committee (MPC) is set to convene on Wednesday, February 19, and Thursday, February 20, to deliberate on interest rates amid persistent inflationary concerns.
The steady expansion in M3 money supply over the past year reflects significant liquidity growth. By November 2024, M3 stood at N108.97 trillion, before rising to N109.41 trillion in December 2024, and ultimately reaching its new peak in January 2025.
Analysts attribute the rise in net foreign assets to improved external reserves, higher capital inflows, and a stronger trade balance, while the increase in net domestic assets is likely linked to higher government borrowing, increased lending by financial institutions, and broader credit expansion.
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The rapid growth in money supply presents a significant challenge for the CBN, particularly in containing inflationary pressures and stabilizing the naira. Historically, an increase in money supply fuels inflation, as excess liquidity tends to drive higher consumer demand, leading to price hikes.
Despite Nigeria’s headline inflation rate dropping to 24.48% in January 2025, following the rebasing of the Consumer Price Index (CPI), concerns remain about inflationary risks. The revised methodology contrasts with the previous calculation, which recorded inflation at 34.80% in December 2024.
At the last MPC meeting, the CBN raised the interest rate by 25 basis points to 27.50%, marking its sixth consecutive rate hike in 2024 in a bid to curb inflation.
With the latest inflation figures suggesting a potential slowdown, the Centre for the Promotion of Private Enterprise (CPPE) has urged the CBN to pause further rate hikes.
Dr. Muda Yusuf, CEO of CPPE, argued that allowing fiscal policy measures to take effect would be a more sustainable approach to managing inflation rather than continuous monetary tightening.
The upcoming MPC decision will be crucial in determining Nigeria’s monetary policy direction for 2025, shaping inflation trends, credit availability, and overall economic confidence.
Policymakers will have to strike a delicate balance between controlling liquidity and fostering economic stability, as their decision will have far-reaching implications for businesses, investors, and consumers.