Nigeria’s broad money supply recorded a modest contraction at the start of 2026, reflecting tightening liquidity conditions in the financial system even as interest rates on key monetary instruments declined.
Latest monetary data released by the Central Bank of Nigeria (CBN) showed that the country’s money supply (M²) fell by 0.8 percent month-on-month to N123.4 trillion in January 2026, down from N124.4 trillion in December 2025. The development points to reduced liquidity in the banking sector, a trend that analysts say may influence lending conditions and economic activity in the months ahead.
The contraction occurred despite a decline in yields on the CBN’s Open Market Operations (OMO) bills, which are widely used by the apex bank to regulate liquidity within the financial system. According to the CBN’s OMO data, the average interest rate on the instrument declined by 2.2 percentage points month-on-month to 17.2 percent as of January 30, 2026, compared with 19.4 percent recorded in December 2025.
A breakdown of the CBN’s Money and Credit Statistics for January 2026 indicated that most components of the money supply recorded declines during the period, with the exception of narrow money and demand deposits.
Quasi money — which includes highly liquid non-cash assets that can easily be converted into cash — dropped by 1.2 percent to N81 trillion in January 2026 from N82 trillion in the previous month. Similarly, currency held outside the banking system declined by 3.7 percent to N5.2 trillion, down from N5.4 trillion recorded in December 2025.
In contrast, demand deposits showed a marginal increase, rising by 1.14 percent to N37.12 trillion in January from N36.7 trillion a month earlier. The increase suggests that more funds were retained within bank accounts rather than circulating as physical cash within the broader economy.
The tightening liquidity conditions were also reflected in movements within domestic credit. Both credit to government and lending to the private sector recorded slight declines during the period, contributing to the overall contraction in monetary aggregates.
Credit to the government declined by 0.11 percent to N34.18 trillion in January 2026 from N34.22 trillion in December 2025. Lending to the private sector also eased by 0.79 percent to N75.2 trillion, compared with N75.8 trillion recorded in the previous month.
As a result, net domestic credit in the economy stood at N109.4 trillion in January 2026, representing a 0.59 percent decline from N110.06 trillion in December 2025.
The moderation in domestic credit comes at a time when concerns about Nigeria’s fiscal position and debt sustainability remain in focus. According to data from the Debt Management Office (DMO), Nigeria’s total public debt stock stood at N153.3 trillion as of September 2025.
Economists note that while borrowing remains a legitimate instrument for financing government expenditure, the sustainability of debt largely depends on how the borrowed funds are utilised.
Analysts argue that the central challenge lies in ensuring that debt is channelled toward productive investments capable of expanding the economy’s capacity. Capital expenditure in infrastructure, industrial development and strategic sectors, they say, can generate long-term economic returns that justify borrowing.
They further stressed that fiscal authorities must complement borrowing with stronger internal revenue mobilisation and improved economic productivity. Leveraging sectors where Nigeria holds comparative advantage — such as agriculture, solid minerals and manufacturing — could help strengthen revenue streams while reducing dependence on debt financing.
In the medium term, experts warn that excessive borrowing without corresponding economic expansion could expose the country to heightened fiscal vulnerabilities. For this reason, they recommend a balanced strategy that combines prudent debt management, targeted investment and sustainable revenue generation to support long-term economic stability.