Nigeria’s Money Supply Surges to N108.95 Trillion

Recent data from the Central Bank of Nigeria (CBN) reveals a sharp year-on-year rise in the country’s broad money supply (M3), which grew by 62.8% to reach N108.95 trillion. This monetary expansion aligns with a spike in currency-in-circulation, now standing at N4.31 trillion, and has spurred significant growth in Credit to the Private Sector (CPS).

Analysts at Cordros Securities expect CPS to sustain double-digit growth into 2024. They attribute this momentum to the CBN’s enforcement of a minimum loan-to-deposit ratio for deposit money banks (DMBs), which incentivizes commercial banks to extend more credit. However, the analysts caution that the CBN’s ongoing monetary tightening efforts could moderate CPS growth.

According to the CBN’s latest figures, CPS rose by 27.5% year-on-year to N75.85 trillion in September, compared to N59.51 trillion in the same period last year. This increase reflects the impact of the CBN’s 50% loan-to-deposit requirement and the depreciation of the naira, which has bolstered the value of banks’ foreign-denominated assets.

“On a monthly basis, CPS climbed 1.7% in September, a rebound from a 1.0% contraction in August, reaching N74.73 trillion. Likewise, credit to the government hit an unprecedented N42.02 trillion in September, marking an 89.8% year-on-year rise from N22.14 trillion in September 2023, reflecting a higher reliance on domestic banks for deficit financing,” analysts noted.

Meanwhile, data from FMDQ indicates a resurgence in the Nigerian Autonomous Foreign Exchange Market (NAFEM), where inflows rose to a five-month high in October, up 40.2% from September to reach $3.04 billion. This increase was largely fueled by foreign inflows, which accounted for 44.6% of the total—a 292.7% monthly surge to $1.37 billion from $345.50 million in September last year, driven by improved carry trade opportunities.

As a result, foreign portfolio investments jumped by 510.9% month-on-month, and foreign direct investments rose by 44.6%, while inflows from other corporate sources declined by 15.1%.

In contrast, domestic inflows decreased for the second consecutive month, dropping by 7.5% to $1.69 billion in October due to reduced collections from individuals (-30.6%), the CBN (-14.3%), and non-bank corporates (-8.6%), though exports/imports edged up slightly by 0.6%.

The report notes that, while foreign investments have recently bolstered liquidity, this trend may not persist given Nigeria’s macroeconomic challenges, structural issues in the FX market, and ongoing volatility of the naira. Additionally, limited inflows from the CBN may continue to pose risks to overall liquidity, potentially affecting market confidence and intensifying pressure on the naira.

In the Treasury bills secondary market, demand pressures softened by the week’s end, reversing four days of bullish activity. This led to a bearish close, with the average yield across all instruments climbing by nine basis points to 25.9%. Segment-wise, the yield rose by four basis points to 24.2% in Nigeria Treasury Bills and by 11 basis points to 26.2% in the Open Market Operations segment.