New data has revealed that money supply in Nigeria rose by 16.53 percent last month on the back of the implementation of foreign exchange reforms by the Central Bank of Nigeria.
The data from the CBN revealed that money supply (M3) increased to N64.90 trillion in June from N55.69 trillion in the previous month.
M3 is a money supply measurement that comprises M2 money, large time deposit, short-term repurchase agreements and large liquid assets.
M2, which includes quasi money, narrow money, currency outside banks and demand deposits, rose to N64.35 trillion in June, representing 15.84 percent above the N55.55 trillion recorded in May.
Other monetary indices such as credit to the private sector, credit to the government, and currency-in-circulation also recorded increases.
“It might have to do with the fact that the exchange rate was adjusted upwards so it pushes up the naira value of FX in bank accounts and FX loans,” Yemi Kale, partner and chief economist, KPMG Nigeria, said.
He said it might also mean more funds being printed.
Bank credit to the private sector maintained steady growth, rising to an all-time high of N52.81 trillion in June this year from N44.78 trillion in the previous month.
This represents 17.93 percent increase.
Credit to the government by banks went up by 1.69 percent from N31.23 trillion in May 2023 to N30.71 trillion.
Currency-in-circulation increased by 3.17 percent to N2.60 trillion in June from N2.52 trillion in the previous month.
Looking at the implications on the economy, Kale said when there is more money than economic activity to absorb that money, it becomes potentially inflationary.
“So unless the excess capital has productive activities for it, it can drive inflation and worsen purchasing power. It can also put pressure on the FX market,” he said.
Nigeria’s inflation accelerated to 22.79 percent in June, compared to 22.4 percent in May, according to the National Bureau of Statistics.
The CBN commenced its series of monetary policy rate (MPR) hikes in May 2022, from 11.5 percent to 18.5 percent currently.
“Among other benefits, slowing the growth of money supply at this time should contribute to rebuilding monetary buffers to improve the economy’s resilience against future shocks,” CBN’s Deputy Governor, Edward Lametek, said in his personal statement at the last Monetary Policy Committee meeting.
A member of the MPC, Adeola Adenikinju, said all domestic components of monetary aggregate rose between March 2023 and April 2023.
According to him the monetary base increased from N15.975 trillion to N17.543 trillion due to increase in currency-in-circulation and reserve requirement.
He said broad money (M3) rose by annualised 22.11 percent above the 2023 benchmark, between March 2023 and April 2023, while domestic claims rose by an annualised 50.28 percent above the 2023 benchmark of 15.78 percent.
“Claims on the Federal Government (net) rose by annualized value of 112.05 percent compared with the 2023 benchmark of 19.64 percent,” he added.
He, however, said net foreign assets declined by an annualized value of -77.13 percent, lower than the 2023 benchmark of 38.82 percent. “Major sources of net liquidity to the economy in April 2023 are net open market operation maturity (N47 billion), FAAC N322 billion, net financing (N443 billion) and net FGN operations (N813 billion),” he added.
“Sustaining banking sector lending to critical sectors of the economy as monetary policy tightens to contain inflation, therefore, remains paramount. Given the positive correlation of market lending rates to the MPR, borrowing costs have risen, while growth in credit has slowed,” CBN’s Deputy Governor in charge of the Financial System Stability, Aisha Ahmad, said in her personal statement at the last MPC meeting.