- Money supply has reached N101.34 trillion as of June 2024
- It increased by 56.15 per cent from June 2023 and 2.11 per cent from May 2024
- The increase raises concerns about inflation in the country
The new figure, according to data from the Central Bank of Nigeria (CBN), represents a 56.15 per cent increase from N64.90 trillion recorded in the corresponding period of June 2023 and a month-on-month increase of 2.11 per cent from N99.23 trillion recorded in May 2024.
M3 typically encompasses both net foreign assets and net domestic assets and gives a holistic view of a nation’s monetary dynamics.
There is also M1 (very liquid monies such as cash, checkable (demand) deposits and traveller’s checks) plus CBN bills, and M2, which represents currency outside banks plus demand deposits and quasi-money (investments).
According to CBN, currency in circulation (CIC) rose to an all-time high of N4.05 trillion in June 2024. This is a 55.77 per cent year-on-year (y-o-y) increase from N2.60 trillion in June 2023 and 2.27 percent month-on-month (m-o-m) increase from N3.96 trillion in May 2024.
The CBN also said 94 per cent (N3.8 trillion) of CIC is cash outside the banking system, indicating more money in people’s hands than in bank vaults.
The surge in M3 is a pointer to underlying factors driving liquidity growth, which may also include government spending.
It is also an indication of increased money flow, especially from expanded government revenue, in the financial system, which can potentially stimulate economic growth.
Analysts at FBNQuest said the increase in CIC poses a risk to inflation. “While the increase in CIC may suggest improved economic activity in nominal terms and higher consumer spending, it also highlights the risk of inflation, particularly if money supply growth exceeds real output growth,” they said in a post on X on Friday, August 2.
Increased money supply raises concerns about inflation
According to economists, an increase in money supply in any economy will trigger inflation as more money chases fewer goods and services, leading to demand-pull inflation. This will impact on the purchasing power of households and erode savings.
While speaking with TheRadar on the economic impact of a new and increased minimum wage, Ikemesit Effiong, the Head of Research at SBM Intelligence, hinted that it could exacerbate inflationary pressures with more money in circulation.
He said, “Economic research has shown is that lower income workers tend to spend a larger proportion of their earnings rather than save it. So, what that would mean is that obviously all of this new spending will go into the economy and you would have aggregate demand rise relative to supply.
“Now in an environment like Nigeria’s where supply is constrained by infrastructural challenges, by insecurity and also by regulation, which makes the cost of production, whether it is of articles or of agricultural products, a bit more expensive, that would lead to what economists call demand-pull inflation, which is that the rise in demand incentivises producers to increase the price of what little goods they are able to bring to the market.”
Despite CBN’s monetary tightening approach to curb inflation by upwardly reviewing interest rates, reaching 26.75 per cent after its Monetary Policy Committee meeting of July, core inflation continues to surge, reaching a new 28-year high of 34.19 per cent in June 2024 when compared to 22.8 per cent recorded in June 2023.
Also, food inflation has been on the rise, reaching 40.47 per cent as of June 2024, according to the National Bureau of Statistics.
MPC expected to take tough policy decisions aimed at addressing economic challenges
Meanwhile, TheRadar had reported that ahead of the decision of the Monetary Policy Committee (MPC) of the CBN, there were speculations of tough policy decisions before the committee due to the economic situation of the country.
These decisions include the Monetary Policy Rate (interest rate), Cash Reserve Ratio (CRR) and other broad monetary policy options.
