Financial landscape in Nigeria has faced yet another setback as the country’s money supply fell to ₦107.66 trillion in October 2024, declining by 1.6% month-on-month to ₦107.66 trillion from ₦109.41 trillion in September, marking its second decline in 2024. This decline in the broad money supply, a crucial gauge of financial health and economic liquidity, points to growing challenges for Africa’s largest economy. Notwithstanding these contractions, M3 showed a strong 45.7% year-over-year growth, up from ₦73.91 trillion in October 2023, indicating a recovery from the severe currency shortages faced in 2023.
The decline in money supply has been attributed to CBN’s efforts to decrease economic liquidity, which has led to slower credit growth and increased borrowing costs. This measure is a component of a larger fiscal tightening program that aims to address macroeconomic imbalances, stabilize the naira, and reduce inflation. However, the effects on consumers and businesses have been profound, as higher interest rates and decreased liquidity have raised financing costs and deterred Investment and spending.
October 2024 saw an increase in cash outside of banks.
Narrow money (M1), which comprises highly liquid assets like demand deposits and cash in circulation, fell by 3.4% month over month from ₦35.86 trillion in September to ₦34.65 trillion in October. However, M1 increased by 31% year over year, from ₦26.43 trillion in October 2023. This indicates that despite the fiscal tightening measures, there has been a rise in the demand for liquid cash during the previous 12 months. Similar to M3, broad money (M2), which comprises M1 as well as savings deposits and quasi-money, contracted by 1.6% in October.
However, it increased from ₦72.66 trillion in October 2023 to a noteworthy 48.2% year-over-year gain. Higher deposit levels in the banking sector, which helped to partially counteract the liquidity pressures brought on by tighter monetary policy, were the main drivers of this expansion. October 2024 also saw an increase in cash outside of banks and in circulation, while M3 as a whole decreased. The amount of money in circulation increased from ₦4.31 trillion in September 2024 to ₦4.55 trillion in October 2024, a 5.7% month-over-month increase.
Drop in the money supply raises questions about the economy.
On a year-over-year basis, it increased by 51.2% from ₦3.01 trillion in October 2023, indicating improved cash availability after early 2023 currency shortages. Similarly, cash outside of banks increased by 6.8% month over month from ₦2.70 trillion in October 2023 to ₦4.29 trillion in October, and by an astounding 58.9% year over year. This points to both an increase in digital transactions and a gradual rebound in the use of public cash. The money supply swings in 2024 highlight the challenges of balancing Economic Expansion and fiscal constraint.
In a nation where government expenditures, investment, and consumer spending account for a substantial portion of economic growth, a declining money supply raises questions about the economy’s access to credit and cash. This drop is particularly concerning given the already precarious situation of Nigeria’s economic recovery after years of slow growth, currency depreciation, and high inflation. CBN’s attempts to control Inflation and maintain Naira stability are reflected in these numbers. The reduction in the money supply indicates that liquidity is being reduced in an effort to manage inflationary pressures, which continue to pose a serious threat to the Nigerian economy.
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As Nigeria navigates a delicate balance between promoting economic recovery and controlling inflation, the wider effects of decreased liquidity on Economic Growth continue to be a major worry. The interplay of monetary and fiscal policy will continue to be crucial as Nigeria negotiates these monetary dynamics. The October money supply reduction illustrates the careful act as the CBN aims to accomplish promoting economic expansion and reducing inflationary pressures, even as both local and international issues continue to influence the economic landscape.