By Chinwendu Obienyi
Despite multiple interest rate hikes implemented by the Central Bank of Nigeria (CBN), the money supply in the economy is at its highest level on record, at almost N49.3 trillion in August, topping the previous record set in May 2022.
This means that money supply is now at a 9.9 per cent gain from December 20, 2021, when the country recorded N44.4 trillion.
This is according to data obtained by Daily Sun from the apex bank on the country’s money supply.
A country’s money supply is a crucial factor in whether or not inflation develops, and that of Nigeria is at an all-time high. The amount of money in circulation has grown over time, owing largely to the CBN’s low-interest policy implemented to stimulate economic growth.
The CBN at its last monetary policy committee meeting, explained the growth in money supply was due to an increase in net domestic assets.
“The Committee noted that broad money supply (M3) grew by 11.05 per cent in August 2022, compared to 8.66 per cent in July, adding that this was driven largely by the growth in Net Domestic Assets (NDA) of 26.19 per cent in July 2022, compared to 22.78 per cent in the preceding month.
The sustained growth in NDA was driven largely by increased claims on the Federal Government and other financial corporations and the private sector,” the bank said.
The CBN also mentioned that the recent rate hike could help slow down the pace of money supply, although analysts believes this will take some time to occur effectively.
“The MPC noted that a tight policy stance would help consolidate the impact of the last two policy rate hikes, which is already reflecting in the slowing growth rate of money supply in the economy,” CBN said.
So far, trillions of naira in CBN intervention funds, as well as bailouts of federal and state governments through its Ways and Means powers, have boosted the money supply and created a strong inflationary environment.
According to the data, the Ways and Means balance was N16.1 trillion in August 2021 but has since risen to N22.068 trillion in August 2022. This is a 36 per cent increase year on year.
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A cursory examination of the data also reveals that the private and public sectors received sector credit worth N40.1 trillion and N21 trillion, respectively.
Furthermore, as of August 2022, Nigeria had the highest-ever net domestic credit to the economy, at N61.1 trillion.
The data also shows that Nigeria’s economy expanded by an average of 1.3 per cent from 2016 to 2021. In contrast, during the same period, the money supply increased from N23.6 trillion to N43 trillion.
Reacting to this, analysts at Nairametrics said, “If the Central Bank’s interest rate hikes continue to be inefficient in managing the money supply and inflation, the average Nigerian would be faced with massive erosion of purchasing power and worsening economic conditions.
Also, further aggressive rate hikes tend to derail economic growth and create unemployment in the economy because firms must deal with an increase in borrowing costs. Moreover, a high inflationary environment would hasten the depreciation of the Naira in the black market”.
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