Nigeria’s Money Supply Reaches Record N78.74 Trillion in December 2023
In December 2023, Nigeria witnessed a historic high in its broad Money supply, soaring to N78.74 trillion, marking a substantial year-on-year increase of 51% from the N52.16 trillion recorded in 2022. This noteworthy development is based on the latest data released by the Central Bank of Nigeria (CBN) through its money and credit statistics.
Significance of the Surge
The surge in Nigeria’s money supply holds crucial implications for the economic landscape, acting as a key indicator for assessing inflation trends and interest rate dynamics. Against the backdrop of economic challenges such as surging inflation rates, pressures on the naira’s exchange value, and a decline in interest rates, the escalating money supply signals potential repercussions on various fronts.
Economic Impact
- Inflationary Concerns: The amplified money supply suggests a likely escalation in inflation, posing a threat to the purchasing power of Nigerians.
- Interest Rate Dynamics: A bloated money supply often leads to reduced interest rates, making Nigerian investment instruments potentially less attractive to international investors. This is particularly concerning given Nigeria’s aim for increased dollar inflows, which have experienced a significant decline.
MPC’s Deliberations
As the CBN’s Monetary Policy Committee (MPC) prepares for its upcoming meeting, the expanded money supply is set to take center stage in discussions, especially regarding the Monetary Policy Rate (MPR). These deliberations play a pivotal role in shaping Nigeria’s economic stability and growth trajectory.
Economic Insights
Economic theory establishes a direct link between the money supply and inflation levels. While it’s conventional for money supply expansion to align with output growth rates, Nigeria’s financial scenario presents a unique challenge. Despite a substantial increase in the money supply, the country’s economic growth has been modest, with an annualized growth rate hovering around 54% GDP.
Inflationary Landscape
Inflation remains a pressing concern, with the headline inflation rate surging from 21.5% to 92% over the past year, marking a 7.5%-point increase.
ALSO SEE: FCMB Reports Gross Earnings of N516.8 Billion in 2023
Projections for the coming year hint at a potential easing of inflation. However, the exchange rate, a key driver of inflation, remains contentious, raising concerns about the inflation outlook in the near to medium term.
CBN’s Measures
Notably, the surge in broad money supply persists despite the CBN’s efforts to tighten monetary policy and absorb excess liquidity. Despite incremental increases in the MPR from 11.5% in May 2022 to 18.75% as of July 2023, the CBN’s inflation target for the year stands at 4%, indicating partial success in reining in inflation.
Future Challenges
The CBN’s first MPC meeting of 2024, slated for the next month, is anticipated to reveal Governor Yemi Cardoso’s stance on ongoing interest rate hikes. This may potentially clash with President Bola Tinubu’s plans to reduce interest rates, setting the stage for a conflict between the government’s economic objectives and the CBN’s tight monetary policy.
The post Nigeria’s Money Supply Reaches Record N78.74 Trillion in December 2023 appeared first on My Finance NG.
