Wisdom Engraced
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The Central Bank of Nigeria’s aggressive monetary tightening measures have not been enough to curb the country’s growing broad money supply. As of March 2025, the supply has risen to N114.22 trillion, representing a 24% increase compared to the same period in 2024.
The growth is attributed to a significant rise in net foreign assets, which increased by 38.9% to N45.17 trillion. However, net domestic assets declined by 11.7% to N69.05 trillion, reflecting tighter liquidity within the domestic financial system.
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The volume of currency in circulation outside the banking system also rose to N4.6 trillion, accounting for 91.9% of the total currency in circulation. This trend highlights the country’s deep-seated reliance on physical currency, particularly in the informal sector
The International Monetary Fund has suggested that the Central Bank of Nigeria announce a formal disinflation path to help anchor inflation expectations. The Fund commended the Monetary Policy Committee’s data-driven approach, stating that it will help navigate the country’s macroeconomic uncertainty.
The Central Bank of Nigeria’s Monetary Policy Committee is set to meet in May 2025, where a rate hike is widely anticipated. However, concerns remain that further tightening could stifle economic recovery and increase borrowing costs for households and businesses.
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The growing money supply and inflationary pressures pose a challenge for the Central Bank of Nigeria’s monetary policy framework. With inflation rising and the cost of goods accelerating, many Nigerians prefer holding cash for immediate access and negotiation advantages.
The current Monetary Policy rate of 27.50% charged by the Central Bank of Nigeria to commercial banks on borrowings is the fifth highest in the world. The rate hike is expected to help curb inflation, but its impact on economic recovery and borrowing costs remains a concern.
The Central Bank of Nigeria’s efforts to promote cashless transactions and financial inclusion have been met with limited success, as the figures suggest that a significant proportion of Nigerians still operate outside the formal financial system.
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Jonathan Nwokpor
