Nigeria's Money Supply Hits N114 Trillion Despite Central Bank's Tightening Measures

Nigeria’s broad money supply, also known as M3, surged to N114.22 trillion in March 2025, marking a 24% increase from N92.19 trillion in the same month of the previous year. This growth occurred despite the Central Bank of Nigeria’s (CBN) efforts to tighten monetary policy, including maintaining a 50% Cash Reserve Ratio (CRR) and a 27.5% benchmark interest rate.

Key Factors Driving the Surge

Net Foreign Assets (NFA): The NFA experienced a significant rise of 38.9%, reaching N45.17 trillion. This increase suggests stronger capital inflows and potential revaluation gains.

Currency Outside Banks: The volume of currency circulating outside the banking system rose to N4.6 trillion, accounting for 91.9% of the total currency in circulation. This indicates a growing preference for holding cash outside formal banking channels.

Net Domestic Assets (NDA): Conversely, NDA declined by 11.7% to N69.05 trillion, reflecting tighter liquidity within the domestic financial system.

Implications for the Economy

Inflation Concerns: Despite the CBN’s efforts to control inflation, which stood at 24.23% in March, the increase in money supply may exacerbate inflationary pressures.

Policy Effectiveness: The continued rise in money supply raises questions about the effectiveness of the CBN’s monetary policy measures in controlling liquidity and inflation.

Economic Stability: The growing disparity between net foreign assets and net domestic assets could signal underlying imbalances in the economy, potentially affecting economic stability.

The significant increase in Nigeria’s money supply to N114.22 trillion, despite the Central Bank’s tightening measures, underscores the complexities of managing monetary policy in a dynamic economic environment. While foreign capital inflows have bolstered the money supply, the rising preference for holding cash outside banks and the decline in domestic assets present challenges for maintaining economic stability.

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