Nigeria’s broad money supply (M3) has climbed to an unprecedented N108.95 trillion as of September 2024, marking a year-over-year increase of 62.8 per cent despite the Central Bank of Nigeria’s (CBN) ongoing efforts to curb inflation through tightening monetary policies. This surge comes against the backdrop of continued economic challenges, as inflation and foreign exchange pressures weigh heavily on the naira.

Data from the CBN show that M3, which includes both net foreign assets (NFA) and net domestic assets (NDA), grew by 1.6 per cent month-over-month from N107.19 trillion in August, indicating a steady rise in liquidity. The monetary policy tightening, typically aimed at reducing liquidity to control inflation, has faced challenges amid increasing demand for credit from the private sector and significant government spending.

This sharp rise in money supply signals Nigeria’s complex economic dynamics under the stewardship of CBN Governor Yemi Cardoso, who took office in September 2023. Cardoso’s approach emphasizes inflation control, currency stability, and economic transparency, but the persistent growth in liquidity reflects both internal and external economic pressures, particularly in the form of government allocations and currency depreciation.

Net domestic assets (NDA) have been a significant driver of the increase, with a 54.6 per cent year-on-year growth to N84.14 trillion in September 2024, up from N54.41 trillion in the same month last year. This growth indicates robust lending activity within the economy, underscoring that businesses continue to seek credit despite high interest rates.

Meanwhile, net foreign assets (NFA) saw a 97.9 per cent year-over-year surge, rising to N24.82 trillion from N12.54 trillion. However, NFA declined by 2.7 per cent on a month-over-month basis, a fluctuation largely attributed to CBN’s interventions in the foreign exchange market to stabilize the naira.

At the recent 297th Monetary Policy Committee (MPC) meeting in Abuja, Governor Cardoso acknowledged the complexities of rising liquidity, stressing the importance of continued vigilance to counter inflationary pressures.

“The MPC noted the continued growth in money supply, recognizing the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures,” Cardoso stated.

In individual statements, MPC members expressed concerns over the potential inflationary impact. Aku Pauline Odinkemelu highlighted that increased money supply, partly driven by allocations from the Federation Account Allocation Committee (FAAC), could lead to hyperinflation if not managed properly.

She remarked, “Excess liquidity…presents a serious challenge to monetary policy effectiveness.” She further suggested that a gradual increase in interest rates might help in controlling liquidity.

Lamido Abubakar Yuguda echoed these concerns, pointing to the inflationary pressures stemming from both domestic and foreign asset growth. He noted that exchange rate depreciation has further fueled money supply expansion, underlining the need for more stringent measures to stabilize the economy.

The growth in money supply typically signals increased liquidity in the financial system, potentially supporting economic expansion as businesses gain easier access to credit for investment and job creation. Additionally, with more money in circulation, consumer spending could rise, boosting demand for goods and services and stimulating further economic activity.

However, the downside remains significant: an unchecked rise in money supply can lead to inflation, especially when it outpaces production. Nigeria, already grappling with high inflation, may see worsening cost-of-living challenges if this trend continues, as a larger money supply could erode purchasing power, impacting lower-income households the most.