Credit to both the government and private sector in Nigeria increased to N118.77 trillion in July 2023 from N115.27 trillion in the previous month, representing an increase of 3 percent and showing that the Nigerian economy received additional N3.5 trillion liquidity in July with the private sector accounting for half of the new injections.

Meanwhile, currency in circulation fell to N2.59 trillion in July from N2.60 trillion in June, which was an indication that interest rate hike could work in concert with other variables to curb liquidity in circulation but may not be the only approach needed by the Central Bank of Nigeria (CBN) to address inflationary pressures in the country.

It should be recalled that the CBN had made several attempts in the last one year to curb the surging inflation. At the end of the CBN’s Monetary Policy Committee on July 25, the apex bank resolved to further raise the benchmark interest rate, the Monetary Policy Rate (MPR) by additional 25 basis points from 18.50 percent to 18.75 percent with the asymmetric corridor left within +100/-300 basis points.

“Members agreed unanimously that the previous series of rate hikes had indeed greatly moderated the pace of price increases. The option to continue to hike the policy rate, albeit moderately, also presented a strong alternative. This is premised on the expected liquidity injections into the economy from the recent policy developments and the likely impact on inflation.

“The Committee remained cautious in arriving at a policy decision as Members noted the need to continue to support investment which will ultimately lead to the recovery of output growth. The balance of these arguments thus, leaned in favour of a moderate rate hike, to sustain efforts at anchoring inflation expectation, narrow the negative real interest rate gap, and improve investor confidence,” Folashodun Sonubi, acting CBN governor, said in July, justifying the latest increase in MPR.

Notwithstanding, headline and food inflation rates surged at the end of July 2023 to 24.08 percent and 26.98 percent, respectively.

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When the credit data are analysed separately, the private sector received the bulk of the credit to the economy in July this year, based on the CBN data. Credit to the private sector rose from N52.81 trillion in June to N54.16 trillion in July, amounting to an increase of N1.35 trillion or an increase of 2.55 percent. This represented 55.6 percent of the new injections into the Nigerian economy in the seventh month of this year.

Credit to the government increased from N31.23 trillion in June to N32.31 trillion in July, representing an increase of 3.44 percent or an additional injection of N2.1.07 trillion to the public sector, amounting to 44.4 percent of the total injections into the Nigerian economy in July.

Credit outside banks reduced by N54.06 billion to N2.209 trillion in July, down from N2.26 trillion in June, which showed that although the credit to the economy increased in July, most of the transactions passed through the formal financial system.

Narrow money was reduced by 1.38 percent in July to N24.16 trillion, down from N24.49 trillion in the previous month. Narrow money refers to the physical cash and coins, demand deposits that are highly liquid.

Money supply M2 increased marginally by 0.88 percent to N64.93 trillion in July, from N64.36 trillion in June.M2 is narrow money and other convertible forms of money. Broad money supply M3 increased by 0.86 percent to N65.46 trillion in July from N64.91 trillion in June.