Nigeria is witnessing a significant increase in money supply across its financial system, as reported by the Central Bank of Nigeria (CBN). In September 2024, the broad money supply (M²) surged by 64.6% year-on-year (YoY), reaching N108.95 trillion, up from N66.17 trillion in the same period last year.
The narrow money supply (M1) also experienced substantial growth, rising by 40.7% YoY to N35.6 trillion in September 2024, compared to N25.3 trillion in September 2023. Broad money serves as a comprehensive measure of the money circulating in an economy, encompassing narrow money as well as other assets that can be easily converted into cash for purchasing goods and services.
According to the CBN’s latest Money and Credit Statistics, released yesterday, the M² has been on an upward trajectory since March 2024. This increase is attributed to positive developments in its components, particularly in quasi-money, which includes savings deposits, time deposits, and other near-money assets. Quasi-money grew by 58.7% YoY to N73.4 trillion, up from N46.2 trillion in September 2023, while demand deposits rose by 37.5% YoY to N31.5 trillion from N22.9 trillion.
Additionally, currency outside banks increased by 48.8% YoY, reaching N4.02 trillion in September 2024, compared to N2.7 trillion a year earlier. This rise in M² is closely linked to heightened domestic borrowing by the government from the private sector. The CBN’s data indicates that credit to the government surged by 89.7% YoY to N42 trillion in September 2024, up from N22.13 trillion in September 2023. In contrast, credit to the private sector rose by 27.6% YoY to N75.9 trillion, from N59.5 trillion in August 2023.
Consequently, net domestic credit experienced a 44.5% YoY increase, reaching N117.9 trillion in September 2024, compared to N81.6 trillion in the same period last year. According to the Debt Management Office, public debt comprises N65.65 trillion ($46.29 billion) in domestic debt, accounting for 54% of the total, while external debt stands at N56.02 trillion ($42.12 billion), representing 46%. Additionally, the 36 states and the Federal Capital Territory (FCT) hold an external debt of $3.1 billion and domestic debt of N4.068 trillion, with the remaining public debt attributed to the Federal Government.
The increase in M² is also indicative of rising interest rates on bank deposits with the CBN. The CBN recently announced an increase in the Standing Deposit Facility (SDF) rate to 25.75%, while the Standing Lending Facility was adjusted to 31.75% following the Monetary Policy Committee’s rate hikes in August. This led to a remarkable 400% month-on-month increase in banks’ deposits in the CBN’s SDF, which rose to N3.97 trillion in September 2024 from N790.87 billion in August 2024.
Analysts at Cowry Asset Management PLC anticipate that interest rates will remain elevated in the fourth quarter of 2024. In their macroeconomic outlook, they stated, “We project that interest rates will remain elevated in Q4’24. The increase in the Cash Reserve Ratio (CRR) to 50% for commercial banks will constrain demand for Treasury Bills and drive up money market rates, particularly interbank rates. Consequently, lending rates are expected to trend higher as banks adjust their risk pricing to account for the increased CRR.”