Currency in Circulation hits all-time-high Fueling Inflationary Pressures

Currency in Circulation hits all-time-high Fueling Inflationary Pressures – The amount of money circulating within the Nigerian economy has surged by 62.66% over the past year, reaching a staggering N4.053 trillion in July 2024. This dramatic increase has intensified inflationary pressures, putting the purchasing power of households at risk as they face rising costs for everyday goods and services.

This is inspite of the Central Bank of Nigeria’s (CBN) efforts to control inflation through various tightening measures, including the use of Open Market Operations (OMO), treasury bills, and a recent hike in the Monetary Policy Rate (MPR) to 26.75%, the money supply continues to expand. The broad measure of money supply, known as M3, reached an all-time high of N106.27 trillion in July 2024, marking a 62.66% increase from the corresponding period last year.

This surge in money supply, alongside the significant rise in currency in circulation, suggests that liquidity remains high in the economy. Analysts warn that this could further exacerbate inflation, as more money chases a limited supply of goods and services.

In addition to the rise in currency circulation, the data also revealed a mixed picture for the financial sector. The amount of currency outside banks (COBs) saw a sharp 65.61% year-on-year increase to N3.66 trillion, indicating a preference for holding cash outside the banking system. However, on a month-on-month basis, COBs dropped by 3.43% from N3.79 trillion in June 2024, hinting at a slight return of cash to banks.

Meanwhile, credit to the government declined significantly by 31.19% to N19.006 trillion in July 2024, down from N27.621 trillion in June 2023. This reduction in government borrowing may signal fiscal tightening or a shift in borrowing patterns. In contrast, loans to the private sector continued to rise, reaching N75.48 trillion in July 2024, a 33.69% increase from the previous year. This increase reflects a high demand for credit as businesses strive to cope with rising costs.

As the Monetary Policy Committee (MPC) prepares to convene for its next meeting, the CBN is expected to consider further rate hikes in an effort to rein in inflation. The planned issuance of N2.20 trillion in treasury bills in the fourth quarter of 2024, along with the N1.5 trillion in OMO bills issued under the leadership of Governor Olayemi Cardoso, reflects the central bank’s ongoing commitment to managing liquidity in the economy.

Economic experts are closely monitoring these developments, as the interplay between rising money supply, inflation, and credit dynamics continues to shape Nigeria’s economic landscape.