Money supply rises to N114tn despite CBN’s strict monetary policies.

Nigeria’s broad money supply climbed to N114.22 trillion in March 2025, despite the Central Bank of Nigeria’s aggressive monetary tightening measures, including an unprecedented hike in the Cash Reserve Ratio to 50 per cent.

According to the latest money and credit statistics released by the apex bank, the March figure reflects a 24 per cent year-on-year increase from N92.19 trillion recorded in March 2024.

On a month-to-month basis, the money supply also grew by 3.2 per cent, up from N110.71 trillion in February.

This growth was primarily driven by a significant surge in net foreign assets, which jumped by 38.9 per cent to N45.17 trillion, suggesting stronger capital inflows and potential revaluation gains.

In contrast, net domestic assets fell by 11.7 per cent to N69.05 trillion, indicating reduced liquidity in the domestic financial system.

Despite the Central Bank’s efforts to rein in inflation and manage liquidity by implementing the world’s highest Cash Reserve Ratio, Nigeria’s monetary base continued to grow.

The increase in broad money supply likely points to the influence of external factors—particularly the rise in foreign asset holdings and government credit—which appear to have counteracted the CBN’s tightening policies.

In the first quarter of the year, M3 grew by 2.8 per cent from N111.11tn in January to N114.22tn in March.

Further data from the CBN show that the volume of currency circulating outside the banking system rose to N4.6tn in March, out of a total currency in circulation of N5.00tn.

This means that 91.9 per cent of all cash in the economy was held outside the banks. It further represents a 26.7 per cent increase compared to N3.63tn held outside the banks in March 2024, when total currency in circulation stood at N3.87tn.

The preference for cash has remained consistent throughout the first quarter of 2025, with January figures showing N4.74tn in cash outside banks (90.5 per cent of total), and N4.52tn in February (89.6 per cent of total).

The continued predominance of cash underscores the economy’s strong structural dependence on physical currency, especially within the informal sector, where banking access and trust in digital platforms remain limited.

Despite ongoing efforts by the government and the Central Bank of Nigeria to promote cashless transactions and financial inclusion, the data indicates that a large portion of the population still functions outside the formal financial system.

This pattern is likely driven by a combination of economic, infrastructural, and behavioral factors. As inflation climbs and the cost of goods rises, many Nigerians opt to hold cash for its immediacy and the bargaining power it provides in daily transactions.

According to the National Bureau of Statistics, headline inflation rose to 24.23 per cent in March, up from 23.18 per cent in February, while month-on-month inflation jumped by 3.90 per cent.

The inflationary environment, coupled with recurring issues in banking platforms—such as failed transfers, ATM errors, and poor customer service—has reinforced the public’s dependence on physical naira.

Also noteworthy is the parallel growth in other monetary aggregates. M2, which includes savings and time deposits but excludes institutional holdings, rose to N114.20tn in March, compared to N91.95tn a year earlier.

Narrow money (M1), which includes currency and demand deposits, also grew to N38.55tn, up by 19.7 per cent year-on-year.

The persistent growth in money supply, despite the CBN’s record-high CRR, presents a policy dilemma for the Monetary Policy Committee, which is expected to meet on May 19 and 20, 2025.

At its last meeting in February, the committee opted to hold the policy rate steady. However, with inflation climbing, cash remaining dominant, and foreign inflows pushing up liquidity, pressure is mounting for the CBN to take more decisive action.

A rate increase is widely expected, although there are concerns that additional tightening could hinder economic recovery and drive up borrowing costs for both households and businesses.

The current Monetary Policy rate of 27.50 per cent charged by the CBN to commercial banks on borrowings is the fifth highest in the world, according to a member of CBN’s Monetary Policy Committee, Mustapha Akinkunmi.

In Nigeria, the Monetary Policy Rate is the interest rate set by the CBN that serves as a benchmark for lending rates in the economy. It influences the cost of borrowing and the overall money supply.

The MPR is the benchmark interest rate that the CBN lends to banks. It influences the interest rates that commercial banks charge their customers for loans and the rates offered on deposits.

This rate, which was raised six times in 2024, is only lower than that of Argentina, with an interest rate of 29 per cent; Zimbabwe, with 35 per cent; Turkey, 45 per cent interest rate; and the highest rate of 59.4 per cent MPR in Venezuela.

Akinkunmi disclosed this in the recently released personal statements of members after the 299th MPC meeting held between February 19 and 20, 2025.

The seasoned economist said the rating highlights the country’s ongoing battle with inflation, currency depreciation, and economic instability.

In a statement issued over the weekend at the end of its Article IV consultation mission to Nigeria, which was held between April 2 and 15, 2025, the International Monetary Fund said the CBN must maintain a tight stance to ensure that inflation continues to decline.

The Fund praised the Monetary Policy Committee’s data-driven strategy, suggesting that outlining a formal disinflation path could help stabilize inflation expectations.

“The Monetary Policy Committee’s reliance on data has been beneficial for Nigeria and will be crucial in managing heightened macroeconomic uncertainty. Introducing a disinflation trajectory as an intermediate target could support the anchoring of inflation expectations,” it stated.