FG borrowings push money supply up 51% despite CBN’s tightening measures

Friday, 03 January 2025 05:16

FG borrowings push money supply up 51% despite CBN’s tightening measures

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FG borrowings push money supply up 51% despite CBN’s tightening measures

Despite the Central Bank of Nigeria’s (CBN) efforts to curb liquidity through tightening measures, the country’s Broad Money Supply (M2) surged by 51% year-on-year (YoY) to ₦108.96 trillion in November 2024, according to the apex bank’s latest report.

The increase was primarily driven by rising domestic borrowings by the Federal Government, the CBN stated. Broad Money Supply (M2) encompasses the total money in circulation, including cash and various non-cash components such as savings deposits and time deposits.

The CBN’s Money and Credit Statistics revealed that M2 grew sharply from ₦72.03 trillion in November 2023. This growth was consistent for six months from April 2024, except for a 1.5% decline in October 2024, when the figure dropped to ₦107.7 trillion from ₦109.4 trillion in September. By November, however, the supply rebounded by 1.2% to ₦108.96 trillion.

The report attributed the YoY increase to growth across key components of M2. Quasi-money, which includes savings and time deposits, rose modestly by 1.96% YoY to ₦72.7 trillion from ₦71.3 trillion. Demand deposits grew significantly by 34.4% YoY, reaching ₦31.6 trillion compared to ₦23.2 trillion in November 2023. Currency outside banks also surged by 50.9%, climbing to ₦4.65 trillion from ₦3.08 trillion in the same period.

Credit allocation also increased substantially, with credit to the government rising 54% YoY to ₦39.6 trillion in November 2024, up from ₦25.7 trillion in 2023. Meanwhile, private sector credit rose by 27% YoY to ₦75.96 trillion, compared to ₦59.7 trillion in the prior year. These trends contributed to a 91% YoY increase in net domestic credit, which soared to ₦115.6 trillion from ₦60.5 trillion in November 2023.

Experts note that while higher liquidity can drive economic activity, balancing fiscal and monetary policies is crucial to preventing inflationary pressures. The CBN consistently raised its interest rate throughout 2024, reaching 27.50% in an effort to control money supply and combat inflation, which climbed to 34.60% in November 2024.