The money supply in Nigeria’s financial system is increasing dramatically. This comes as the Central Bank of Nigeria reported that the broad money supply (M2) rose from N66.17 trillion in the same month in 2023 to N108.95 trillion in September 2024, a 64.6 percent YoY rise. The top bank also said that the narrow money (M1) increased from N25.3 trillion in September 2023 to N35.6 trillion in September 2024, a 40.7 percent YoY increase.
A measure of the quantity of money in circulation within an economy is called “broad money.” Narrow money and other assets that are easily convertible into cash to purchase goods and services are included in this method, which is the most comprehensive way to determine a nation’s money supply.
The report also demonstrated that improvements in its constituent parts preceded the expansion of the money supply. The data showed that Quasi Money grew by 58.7 percent YoY to N73.4 trillion from N46.2 trillion in September 2023, as demand deposits increased by 37.5 percent YoY to N31.5 trillion in September 2024 from N22.9 trillion in September 2023.
In a same vein, currency outside of banks rose from N2.7 trillion in September 2023 to N4.02 trillion in September 2024, a 48.8% YoY rise. The high level of domestic government borrowing from the private sector is reflected in the increase in M². Data from the CBN shows that credit to the government rose from N22.13 trillion in September 2023 to N42 trillion in September 2024, an increase of 89.7% YoY.
Conversely, private sector credit increased YoY by 27.6% from N59.5 trillion in August 2023 to N75.9 trillion in September 2024. As a result, net domestic credit increased 44.5 percent year over year to N117.9 trillion in September 2024 from N81.6 trillion in the same period in 2023.
As a result, according to the Debt Management Office’s public debt report, external debt accounted for 46 percent of the overall public debt, at N56.02 trillion ($42.12 billion), while domestic debt accounted for 54 percent, at N65.65 trillion ($46.29 billion).
Furthermore, the Federal Government is responsible for the remaining portion of the overall public debt, with the 36 states and the Federal Capital Territory (FCT) owing $3.1 billion in external debt and N4.068 trillion in internal debt. Additionally, an increase in M2 also means that bank deposit interest rates have increased in response to CBN urging. Another reason for the growth in M2 is the hike in interest rates on bank deposits made through the CBN Standing Deposits Facility, or SDF.
After the CBN Monetary Policy Committee (MPC) raised rates in August, the CBN announced that the SDF rate, which applies to deposits made by banks with the CBN, had been raised to 25.75 percent, while the Standing Lending Facility was changed to 31.75 percent.
According to data from CBN Financial Data, banks’ deposits in the CBN’s SDF increased significantly after this occurrence, rising 400 percent month over month to N3.97 trillion in September 2024 from N790.87 billion in August 2024. Interest rates are expected to continue to rise in the fourth quarter, Q4’24, according to Cowry Asset Management PLC analysts.
They stated in their Q4’24 macroeconomic outlook: “We anticipate that interest rates will continue to be high in Q4’24. In addition to limiting bank demand for Treasury Bills, the increase in the commercial banks’ cash reserve ratio (CRR) to 50% will raise money market rates, especially interbank rates. “As banks revalue their risky assets to account for the higher Cash Reserve Ratio, lending rates will continue to trend northward.”
