The money supply (M3) reached a record high of N99.23 trillion in May 2024, and given banks’ predicted capitalization, it is anticipated to soar even higher. This would raise concerns regarding the value of the naira and the ongoing pressure from inflation.
The Central Bank of Nigeria (CBN) released data indicating that M3 increased from N55.69 trillion in May 2023 to N99.23 trillion in May 2024, a year-over-year increase of 78.18 percent.
An economy’s inflationary pressure increases with an increase in the money supply. Economists claim that while it can spur economic growth, it might also erode price stability.
The money supply grew by 2.33 percent month over month from the N96.97 trillion reported in April 2024. A quarter-on-quarter increase of 7.46 percent was observed from N92.34 trillion in March 2024.
This is true even though the Central Bank of Nigeria (CBN) has tightened its monetary policy. Under Governor Olayemi Cardoso’s leadership, the CBN has issued Open Market Operation (OMO) bills totaling more than N1.5 trillion.
The action was intended to stabilize the naira, whose sharp depreciation has shaken the economy, and control inflation.
According to Ayokunle Olubunmi, head of financial institutions ratings at Agusto Consulting, “the increased money supply is as a result of the expanded government revenue on the back of the persistent naira depreciation and improved performance of the oil sector.”
A broad indicator of an economy’s money supply is called M3. It includes a wide range of liquid assets that are easily spent or invested in.
In addition to substantial time deposits (greater than two years), institutional money market funds, and short-term repurchase agreements (repos), M3 also includes M2 (currency, checking deposits, and savings deposits up to two years).
According to Olubunmi, the economy’s ongoing growth in the money supply has some effects.
He claimed that it would increase inflationary pressures and lessen the impact of the different steps the CBN has taken to stop inflation from growing.
Second, he pointed out that the growing money supply might put further pressure on exchange rates.
He went on, “Unfortunately, as the banks raise capital to meet the CBN regulation, the money supply is expected to increase further.”
From N3.92 trillion in April 2024 to N3.96 trillion in May 2024, the amount of money in circulation increased by 1.02 percent. The amount of money in circulation increased by 2.59 percent quarterly from N3.86 trillion in March of the same year.
According to figures from the central bank, lending to the private sector grew to N74.31 trillion in May 2024, up 1.92 percent from N72.91 trillion in April of the same year.
In May 2024, money outside of banks reached N3.70 trillion. By comparison, this is a 2.77 percent rise from N3.60 trillion in April 2024.
Dangote opposes interest rate hikes
Aliko Dangote, the richest man in Africa, claims that a 30 percent interest rate will discourage foreign investment and impede the country’s progress.
At the opening keynote presentation of the Manufacturers Association of Nigeria (MAN) conference, which is now taking place in Abuja, Dangote warned that unless immediate action is made to lower interest rates and address the dire status of Nigeria’s economy, the nation may end up becoming a hub for trade.
To control inflation, the CBN increased the benchmark interest rate, or monetary policy rate, from 24.75 percent in March to 26.25 percent in May 2024. According to the National Bureau of Statistics (NBS), inflation rose from 33.20 percent in March 2024 to 33.69 percent in April 2024.
However, the president of the Dangote Group claims that the economy won’t accomplish anything significant except than lower rates.
“No prosperity, no growth, no power. Likewise, without accessible funding, there would be no expansion or wealth. Without protection, industrialization cannot exist. Ignoring these truths is what leads to instability, banditry, kidnapping, and extreme poverty,” he stated.
In a list of the manufacturing sector’s economic benefits and its potential to help Nigeria out of its current foreign exchange problem, Dangote stated:
“There is evidence that the strength of a country’s manufacturing sector determines its capacity to compete in global trade of which 70% is in manufactured goods, according to available statistics. Countries that have industrialized, have a strong manufacturing sector, and can export manufactured goods are often able to expand their economies through global commerce.”
