From Expansion to Contraction: The Story Behind Nigeria’s Money Supply Decline

Nigeria’s money supply experienced its first decline in 2025, falling to N110.32 trillion in February from N110.94 trillion in January, according to recent data from the Central Bank of Nigeria (CBN).

This 0.56% month-on-month dip is a reflection of the apex bank’s intensified liquidity management efforts, following earlier monetary tightening measures and foreign exchange adjustments.

Despite this contraction, the figure remains significantly higher compared to February 2024, when money supply was recorded at N95.56 trillion, representing a notable year-on-year increase of 15.45%.

The concept of money supply is a critical measure that offers insights into an economy’s liquidity status. Broad money supply, or M3, encompasses net foreign and domestic assets, providing a comprehensive overview of Nigeria’s monetary dynamics. February’s decline reflects developments across both components, signaling changes in the financial landscape.

Diving Into the Numbers: Key Components of Money Supply: A closer examination of the data reveals that net foreign assets took a significant hit, dropping by 8.62% to N32.34 trillion in February from N35.39 trillion in January. This reduction of over N3 trillion is likely attributed to lower external reserves or intensified foreign exchange interventions by the CBN, aimed at stabilizing the naira amid currency volatility.

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Conversely, net domestic assets showed resilience, rising by 3.21% from N75.55 trillion in January to N77.97 trillion in February. This increase points to ongoing credit expansion within the domestic economy, particularly driven by government and private-sector lending. On a yearly basis, net foreign assets displayed staggering growth, surging by over 337% from N7.41 trillion recorded in February 2024. The surge reflects exchange rate reforms and increased foreign inflows. However, net domestic assets dipped slightly year-on-year, down from N88.15 trillion, suggesting a reallocation within the financial system influenced by changing policy directions.

Broad money supply (M2) followed a similar trajectory to M3, declining marginally to N110.31 trillion in February from N110.93 trillion in January. This 0.56% contraction mirrors the overall trend but still represents a robust year-on-year growth of 17.39%, up from N93.97 trillion in February 2024. The data underscores broader monetary expansion over the past year, fueled by increased government spending and fiscal measures.

On the other hand, narrow money supply (M1), which comprises currency in circulation and demand deposits, rose by 2.18% in February, climbing to N37.57 trillion from N36.77 trillion in January. Year-on-year, narrow money expanded significantly by 24.07%, up from N30.28 trillion in February 2024. This increase is attributed to higher transactional demand for cash and short-term liquidity needs amid inflationary pressures and currency fluctuations.

Shifting Liquidity Dynamics: The decline in overall money supply, despite the uptick in narrow money and net domestic assets, signals shifts in liquidity structures within Nigeria’s economy. The drop in net foreign assets appears to be the main driver of the contraction in M3, highlighting the impact of stabilizing inflows and the CBN’s interventions in the foreign exchange market.

Meanwhile, the sharp rise in foreign assets observed over the past year now seems to be leveling off, possibly reflecting the conclusion of aggressive foreign inflows or adjustments linked to external reserves. These changes suggest that the liquidity structure is undergoing realignment, with domestic credit conditions remaining relatively stable.

Implications for Monetary Policy: With inflation still elevated and the naira showing signs of stability, February’s contraction in money supply presents an opportunity for the CBN to recalibrate its policy tools. As Nigeria grapples with balancing inflation control and economic growth, these latest figures will likely inform deliberations at the next Monetary Policy Committee (MPC) meeting.

CBN’s strategy of monetary tightening, coupled with foreign exchange adjustments, has been instrumental in managing liquidity levels. However, the dual challenge of sustaining economic expansion while keeping inflation in check remains an ongoing concern. February’s decline could indicate progress in liquidity management, but the broader monetary trends suggest that the journey toward macroeconomic stability is far from over.

Looking Ahead: Nigeria’s money supply dynamics are a reflection of the country’s evolving economic landscape, influenced by global market conditions, government policies, and CBN interventions. The contraction in February underscores the delicate balance required to maintain liquidity while addressing inflation and currency volatility.

As the MPC convenes to analyze these figures, policymakers must weigh the implications of current trends against the broader need for sustainable economic growth. The rise in narrow money and credit expansion highlights areas of resilience, even as foreign asset dynamics pose challenges to broader stability.