Nigeria’s money supply increased to N64.9 trillion in the month of July 2023, a significant rise from N64.3 trillion in June.
This compares to the N55.5 trillion recorded in May, amounting to a disturbing N9.4 trillion increase.
These figures come from the latest data released by the Central Bank of Nigeria as captured in its money and credit statistics.
The money supply, identified as M2, captures the total amount of money available in the economy at a particular moment.
This includes physical currency such as coins and banknotes, in addition to various types of deposits maintained by individuals, enterprises, and institutions in banks and other financial entities.
Why this matters: The money supply is a crucial indicator when evaluating interest rates and potential inflation during a certain timeframe.
- The recent surge in Nigeria’s money supply aligns with challenges like escalating inflation, pressure on the exchange rate, and diminishing interest rates.
- As the money supply grows, there’s a rising chance of inflation, leading to decreased purchasing power.
- Additionally, a larger money supply might result in declining interest rates, especially when investment assets are in short supply.
- This could potentially make Nigerian assets less enticing to overseas investors, a concern given Nigeria’s dependence on dollar imports.
Key Highlights of the Data
M2 Breakdown – A closer look at the data reveals that certain components of the money supply, namely demand deposits, quasi-money, and currency outside banks, also witnessed growth.
- Specifically, quasi-money, which pertains to financial tools that can be easily converted to cash, surged by N905.8 billion for the month.
- Nairametrics analysts believe this rise may be due to the revaluation of certain dollar-tied investments.
- Moreover, demand deposits, primarily made up of chequing accounts or funds in banks accessible without prior notice, fell by N283.7 billion.
- In contrast, currency outside banks observed a relatively modest increment of N54 billion.
M3 also Rises – Apart from M2 components, another money supply measure known as M3, which incorporates the aggregate of net domestic assets and net foreign assets, also exhibited growth. Both components recorded growth from June to July.
- Remarkably, net foreign assets saw a substantial rise, moving from the N4.9 trillion recorded in May 2023 to N9.2 trillion. It was, however, N11 trillion in June 2023.
- The dynamic between M3 and M2 unveils a mix of elements causing the surge, including the revaluation of dollar assets, the incorporation of new assets, and credit formation in July.
- Notably, credit to the government expanded from N31.2 trillion to N32.3 trillion, and net domestic credit climbed from N84 trillion to N86.4 trillion.
- The M3 for July 2023 stood at N65.4 trillion, a slight increase compared to the M2 at N64.9 trillion.