Nigeria’s total money supply, known as M2, increased by 48.3% over the past year, reaching ₦107.7 trillion in October 2024, up from ₦72.6 trillion in October 2023.
Understanding Money Supply (M2): M2 includes all the cash in circulation and funds in bank accounts that can be quickly converted to cash. A rise in M2 means there’s more money available in the economy.
Factors Contributing to the Increase:
Government Borrowing: The Nigerian government has borrowed more from domestic sources, leading to an 89.7% increase in credit to the government, totaling ₦42 trillion in September 2024, up from ₦22.13 trillion the previous year.
Private Sector Lending: Loans to businesses and individuals grew by 27.6%, reaching ₦75.9 trillion in September 2024, compared to ₦59.5 trillion in September 2023.
Implications of Increased Money Supply:
Economic Growth: More money can boost economic activities by making it easier for businesses to get loans for expansion.
Inflation Concerns: If the amount of money grows faster than the production of goods and services, it can lead to higher prices, reducing people’s purchasing power.
Central Bank’s Response: To manage the rising money supply and control inflation, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25% in September 2024. Additionally, the Cash Reserve Ratio (CRR) for Deposit Money Banks was increased by 500 basis points to 50%.
Conclusion: The significant rise in Nigeria’s money supply reflects increased government borrowing and private sector lending. While this can stimulate economic growth, it also poses challenges like potential inflation, prompting the CBN to implement measures to maintain economic stability.
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