This was revealed in the statements they made at the
February MPC meeting, which was posted on the website of the apex bank on
Monday.
One of the MPC members, Pauline Odinkemelu, said, “On the
monetary sector, growth in money supply (M3) rose by 18.25 per cent to N93.72tn
at end-January 2024 over the preceding December. Broad money (M2) and narrow
money (M1) grew by 17.81 and 3.68 per cent, respectively at end-January 2024.
“The growth in broad money supply was driven by the rise in
other deposits, transferable deposits, and securities other than shares. In my
view, the growth in M1 could further worsen inflationary pressures in the
economy, as it signals rising transactional motives or excess liquidity in the
system. The motive for holding excess liquidity is generally classified into
precautionary or voluntary motives.”
According to to Odinkemelu, precautionary excess liquidity
portion is useful as a buffer for insuring bank capital and uncertainty
surrounding customers’ withdrawal, and does not have negative effect on
monetary policy.
“However, involuntary motive usually above the desired
level– a common feature of developing economies banking system – is not
desirable during this period of persistent inflationary pressure, and also
influences my decision to vote for monetary policy tightening. In voting for
tightening, I am mindful of the implications of a rate hike on the stability of
the banking system and therefore, will vote to raise the Monetary Policy Rate
(MPR) by 300 basis points from 18.75 per cent to 21.75 per cent,” she stated.
Money Supply statistics from the CBN as of January 2024
revealed that currency in circulation surged by 163 per cent in January 2024 to
N3.651tn from N1.39tn in the corresponding period of last year.
Month-on-month, there was a marginal 0.1 per cent decline
from the historic high of N3.653tn in December 2023.
In the same vein, currency outside banks grew by 314 per
cent to N3.28tn in January 2024 from N0.79tn (January 2023), implying that
89.86 per cent of the currency in circulation was outside the banking system as
of January 2024.
That was a notable rise from the 57.14 per cent recorded in
January 2023, following the CBN’s naira redesign.
The currency out banking system marked its all-time high at
94 per cent in December 2023 and makes up 84.46 per cent on average of currency
in circulation between 1960 and January 2024.
Another MPC member, Mustapha Akinkunmi, added that Nigeria
witnessed a decrease in its reserve money to approximately N24.2tn by the end
of January 2024, while broad money supply increased to N93.7tn, noting that
this exacerbated inflationary pressures within the country.
The Director General of the Securities and Exchange
Commission, Lamido Yuguda, who is also a member of the MPC, said that loose
monetary policy prevailed for most of 2023 leading to excess liquidity in the
system.
“Reserve money increased by 54.28 per cent between December
2022 and December 2023, while broad money (M3) increased by 50.88 per cent over
the same period, well above the provisional benchmark of 28.21 per cent.
“The 50.88 per cent increase in broad money from NGN 52.2tn
in December 2022 to N78.7tn in December 2023 was driven mostly by a 46.27 per
cent increase in net domestic assets, which rose by NGN 22.4tn. In other words,
this represents additional credit created in the economy.” According to Yuguda,
while reserve money declined by 2.34 per cent in January 2024 relative to
December 2023 driven largely by a decline in liabilities to other depository
corporations broad money (M3) increased by 18.25 per cent within one month,
adding to the high level of excess liquidity in the system.
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