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General News of Tuesday, 31 January 2023


Money supply in Nigeria rose to N52.14 trillion in 2022 despite CBN’s hawkish policies

CBN Governor, Godwin Emefiele CBN Governor, Godwin Emefiele

Despite many moves by the Central Bank of Nigeria to mop up liquidity in the Nigerian economy last year, the nation’s money supply still rose to an all-time high of N52.14 trillion.

According to data from the apex bank, Nigeria’s money supply gained a massive N8.32 trillion in the review year after jumping from N43.82 trillion in 2021. This indicates an increase of 19% year-on-year.

Nigeria recorded a record-level inflation rate in 2022 triggered by the Russia-Ukraine war and the global energy crisis. In November 2022, Nigeria’s inflation rate climbed to a 17-year high of 21.47% moderating albeit slightly to 21.34% in the following month.

In a bid to tame the rising rate of inflation in the country, which had increased for eleven successive months, the CBN’s monetary policy committee (MPC) raised the benchmark interest rate (MPR) by a collective 500 basis points to 16.5% in November 2022. The committee however followed with an additional 100 basis points increase to 17.5% in January 2023.

The tightening stance of the CBN was aimed at reducing the money supply in the country and currency outside the vaults of the banks, which is believed to be fuelling the inflationary pressure. Unfortunately, the increase in money supply has remained unabated, consistently trending upward since August 2022.

What the data says: The money supply, which is a function of the level of liquidity in the economy comprises net foreign assets and net domestic assets.

According to the data, net foreign assets stood at N4.25 trillion as of December 2022, an N4.56 trillion decline when compared to N8.81 trillion recorded as of the corresponding period of 2021.

On the other hand, net domestic assets rose by a whopping N12.88 trillion in the review year to stand at N47.89 trillion from N35 trillion the previous year. This implies that Nigeria’s money supply growth is driven by the surge in net domestic assets.

This is largely driven by the increase in domestic credit, which stood at N66.46 trillion as of the end of the year.

Further breakdown showed that credit to the government increased by the huge sum of N11.33 trillion to stand at N24.66 trillion, while credit to the private sector increased by N6.6 trillion to stand at N41.8 trillion in the same period.

On currency in circulation: The total currency in circulation in the Nigerian economy stood at N3.01 trillion at the end of the year, an N313.1 billion reduction compared to N3.33 trillion recorded in the previous year.

Currency outside the vaults of the banks also stood at N2.57 trillion, representing 85.2% of the total currency in circulation.

Meanwhile, the recent announcement by the governor of the central bank, Godwin Emefiele indicated that the currency outside the banks has dropped significantly to N900 billion, thanks to the naira redesign programme and cash swap policy.

Nairametrics reported earlier that the CBN said it had recovered N1.9 trillion worth of the currency previously held outside the banking system as of January 2023.

“Ladies and gentlemen, available data at the Central Bank of Nigeria has shown that in 2015, currency in circulation was only N1.4 trillion.”

“As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the banking industry and N2.7 trillion held permanently in people’s homes.”

“So far and since the commencement of this program, we have collected about N1.9 trillion; leaving us with about N900 billion (N500 billion + N1.9 billion),” Emefiele said.

CBN halts private sector inventions: Meanwhile, CBN’s interventions to the private sector by the apex bank have been put on hold since November last year, as part of the apex bank’s move to have a firmer grip on money supply in the country.

According to the communique of the recently concluded monetary policy meeting held on the 23rd and 24th of January 2023, the real sector intervention as of January 2023 remained unchanged compared to November 2022.