Inflation: Nigerian Money Supply Hits N99trn, Sparks Economic Worries

Nigerian Money Supply Reaches Record High

In May 2024, Nigeria’s money supply (M3) hit an unprecedented high of N99.23 trillion, raising concerns about the naira’s stability and ongoing inflation.

According to the Central Bank of Nigeria (CBN), this figure represents a 78.18% increase from N55.69 trillion in May 2023.

Impact on Inflation and Economic Stability

Economists caution that the increased money supply could exacerbate inflationary pressures. “The expanded government revenue and improved oil sector performance are driving this surge,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting. He added, “This will further reduce the effectiveness of CBN’s measures to control rising inflation.”

On a monthly basis, the money supply rose by 2.33% from N96.97 trillion in April 2024. Quarter-on-quarter, it saw a 7.46% increase from N92.34 trillion in March 2024. Despite the CBN’s monetary tightening efforts, including issuing over N1.5 trillion in Open Market Operation (OMO) bills, inflation remains a persistent challenge.

Analysts Perspectives On Future Trends

Tilewa Adebajo, CEO of The CFG Advisory, expressed concern over the continuous rise in M3. “The M3 money supply is nearing N100 trillion. With the current inflation control measures, one must question whether this increase is due to additional borrowing and expenditure,” he remarked.

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Adebajo emphasised the need for more data to understand the full impact. “We might have to wait for June data and the next inflation figures for the right answers,” he said.

Currency and Credit Dynamics

The data showed a 1.02% increase in currency circulation to N3.96 trillion in May 2024, up from N3.92 trillion in April. Credit to the private sector also grew, reaching N74.31 trillion in May 2024, a 1.92% increase from N72.91 trillion in April.

Currency outside banks rose by 2.77% to N3.70 trillion from N3.60 trillion in April 2024.

Business Leader’s View on Interest Rates

Africa’s richest man, Aliko Dangote, criticised the CBN’s interest rate hikes. “A 30% interest rate will stifle investments and lead to stunted growth,” Dangote said during a summit by the Manufacturers Association of Nigeria (MAN) in Abuja. He argued that high rates hinder economic progress, stating, “Without affordable financing, there is no growth or prosperity.”

Dangote called for urgent steps to lower rates and address Nigeria’s economic challenges. “Ignoring these facts leads to insecurity, banditry, kidnapping, and poverty,” he warned.

The Way Forward

Dangote highlighted the manufacturing sector’s potential to resolve Nigeria’s foreign exchange crisis. “The strength of a country’s manufacturing sector determines its global trade competitiveness. Countries with robust manufacturing can grow their economies through global trade,” he stated.

With inflation at 33.69% in April 2024, up from 33.20% in March, the debate over economic policies continues. The CBN raised the monetary policy rate to 26.25% in May 2024 from 24.75% in March to curb inflation.

However, the effectiveness of these measures remains a contentious issue among experts and business leaders.

The surge in Nigeria’s money supply poses significant challenges to inflation control and economic stability.

As the CBN navigates these complexities, the debate over interest rates and monetary policies intensifies, highlighting the need for balanced economic strategies to ensure growth and stability.