Data on demand deposits from the Central Bank of Nigeria‘s website shows that they increased by 206.83 percent from N9.67 trillion in May 2019 to N29.67 trillion in May of this year.
According to the data, the nation’s demand deposits increased to N10.57 trillion in May 2020 from May 2019 growth of 9.31%, despite the COVID-19 pandemic’s negative impact on the world economy.
The rise persisted into 2021 and beyond, early in 2023 topping N20tn.
Increased economic activity, government stimulus programmes, and improved banking system liquidity are some of the factors driving the expansion.
In an interview with our correspondent on Friday, Shedrach Israel, an economist at Lotus Beta Analytics, pointed out that the increase in demand deposits was a reflection of strong consumer confidence and liquidity in Nigeria’s financial system.
“It reflects heightened economic activities, investments, and savings mobilisation within the country, supporting lending activities and stimulating economic growth,” he adds.
The increasing trend in demand deposits, however, also presents challenges for monetary policymakers, calling for close observation in order to maintain long-term economic development, control inflationary pressures, and guarantee financial stability.
While the rise in demand deposits was indicative of a strong financial system, experts pointed out that cautious handling was also necessary to reduce risks and guarantee long-term economic growth.
According to Olorunfemi Idris, an analyst at Phemmy Gracey Limited, the rise in demand deposits has significant effects on the economy since it gives banks more money to lend, which could enhance credit availability and spur economic growth.
But he also brought up the issue of inflation and the possible expansion of the money supply, which, if not controlled, might cause instability in the economy.
