Economy: Money supply goes higher 56% to N100trn in June
Money supply (M3), which is a broad measure of the total amount of money in an economy, has surpassed N100 trillion, reaching an all-time high for the country.
Data from the Central Bank of Nigeria (CBN) shows that M3 rose to a record N101.34 trillion in June 2024, represents a 56.15 percent increase to N64.90 trillion recorded in the corresponding period of June 2023.
When the money supply increases, it can lead to higher inflation. As more money chases the same amount of goods and services, prices tend to rise. This means that households might face higher living costs for everyday items, reducing their purchasing power, said a Lagos-based economist.
On a month-on-month basis, money supply increased by 2.11 percent from N99.23 trillion in May 2024. M3 is used by economists to estimate the total amount of money available in an economy, which can influence inflation, interest rates, and overall economic activity.
This is despite the monetary tightening of the CBN. The CBN has issued over N1.5 trillion in Open Market Operation (OMO) bills since Olayemi Cardoso took the helm as governor in a bid to stem inflation and prop up the naira, whose steep decline has unsettled the economy.
“The increased money supply is as a result of the expanded government revenue on the back of the persistent naira depreciation and improved performance of the oil sector,” said Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting.
The Senate and the House of Representatives on Wednesday doubled government’s borrowing limit from the CBN, known as Ways and means, from five percent threshold to 10 percent amid excess liquidity concerns. Ways and Means is provided by the CBN to finance the Federal Government’s budget shortfalls. This facility allows the government to borrow from the CBN to secure short-term or emergency funding for critical projects.
The CBN’s data revealed that currency in circulation (CIC) rose to an all-time high of N4.05 trillion in June 2024. It jumped by 55.77 percent year-on-year from N2.60 trillion in June 2023. Money in circulation increased by 2.27 percent from N3.96 trillion in May 2024.
“While the increase in CIC may suggest improved economic activity in nominal terms and higher consumer spending, it also highlights the risk of inflation, particularly if money supply growth exceeds real output growth,” analysts at FBNQuest said.
According to a report by FBNQuest indicates continued expansion in liquidity despite the Monetary Policy Committee’s (MPC) hawkish measures to tighten liquidity and control inflation.
Latest data from the Nigerian Bureau of Statistics (NBS) shows an inflation rate of 34.2 percent in June 2024, up from 22.8 percent in June 2023.
Currency outside banks surged by 67.69 percent year-on-year to N3.79 trillion in June 2024 compared to N2.26 trillion recorded in June 2023. It increased marginally by 2.43 percent month-on-month from N3.70 trillion in May 2024.
According to the data, net credit to the government declined by 10.18 percent to N28.05 trillion in June 2024 from N31.23 trillion in June 2023. On a month on month basis, it dropped by 0.32 percent from N28.37 trillion recorded in May 2024.
Credit to the private sector decreased to N73.12 trillion in one month (June 2024), representing 1.60 percent over N74.31 trillion in May 2024. Against the corresponding period, it rose by 38.46 percent from N52.81 trillion in June 2023.
