Nigeria Records Second Money Supply Decline This Year
- Nigeria’s money supply fell to N119.01 trillion in May 2025.
- The decline in money supply is a month-on-month drop of 0.25 percent.
- Year-on-year, broad money supply grew by 19.9 percent from 2024.
- Net foreign assets decreased by 8.1 percent over the month.
- Despite declines, M1 remains elevated compared to May 2024.
Nigeria’s Money Supply Declines Again in May
Nigeria has experienced its second decline in broad money supply this year, with the Central Bank of Nigeria reporting a decrease to N119.01 trillion in May 2025. This represents a decline of N292.75 billion, or 0.25 percent, compared to the previous month’s figure of N119.30 trillion recorded in April. Interestingly, this marks a continuation of a trend that began earlier in February, where the money supply fell from N110.94 trillion in January to N110.32 trillion.
Year-on-Year Growth Highlights Liquidity Trends
Despite this recent decrease, the overall money supply remains near historic highs, likely due to preceding liquidity surges and ongoing monetary policy shifts. Year-over-year comparisons further reveal a significant increase; the broad money supply is up by N19.77 trillion from N99.24 trillion in May 2024, equating to a robust growth rate of 19.9 percent. This increased liquidity is attributed to various factors, including enhancements in net foreign assets, though recent data indicates a shift in Nigeria’s liquidity structure as foreign assets have contracted significantly.
Net Domestic Assets Provide Stability
A further look into the specifics shows that net foreign assets fell sharply from N49.87 trillion in April to N45.81 trillion in May, a decline of N4.05 trillion or about 8.1 percent. This decline potentially indicates a weakening external asset position due to factors like drawdowns on foreign reserves or reduced inflows. On the flip side, net domestic assets saw a gain, rising from N69.43 trillion to N73.19 trillion within the same period—an increase of N3.76 trillion or 5.4 percent. This uptick helped cushion the overall money supply from experiencing a major drop.
Different Measures of Money Show Tightening Trend
In terms of other measures of money supply, M2, which is an intermediate measure excluding certain institutional holdings, also showed a slight decline, dropping from N119.28 trillion in April to N118.99 trillion in May, reflecting a decrease of N283 billion or 0.24 percent. This decline mirrors overall contractions in M3 and suggests a trend toward tightening in the financial system. Meanwhile, narrow money supply (M1), which includes currency in circulation and demand deposits, fell from N41.00 trillion to N40.38 trillion—a drop of N624.5 billion or 1.5 percentage points.
Overall Money Supply Still Rising
Despite this recent decline in the narrower definitions of money supply, M1 remains elevated compared to last year, standing at N33.38 trillion in May 2024. This indicates a year-on-year increase of 20.9 percent. The elevated narrow money levels reinforce the view that liquidity is still substantial in the economy, and it comes even as the Central Bank of Nigeria continues efforts to manage it effectively. Furthermore, total money supply (M3) rose by nearly N20 trillion from May 2024 to May 2025, with the increase mainly driven by net foreign assets.
Growth in Foreign Assets versus Decline in Domestic Liquidity
The rise in these foreign assets from N15.34 trillion in May 2024 to N45.81 trillion in May 2025—an increase of over 198 percent—can largely be attributed to improved financing conditions. This includes higher oil revenues and sizeable inflows from Eurobond issuances as well as diaspora remittances. However, interestingly, this surge in foreign assets was paired with a drop in domestic liquidity, with net domestic assets decreasing by N10.71 trillion over the same period—moving from N83.90 trillion down to N73.19 trillion.
Future Outlook of Monetary Policy Adjustments
This latter drop indicates possibly tighter credit lines and government borrowing, as well as a reduction in Central Bank of Nigeria’s claims on the financial system. The bank’s tighter monetary policy stance is becoming apparent, indicated by a high Monetary Policy Rate along with aggressive open market operations. The contraction in May, particularly seen in the most liquid forms of money, suggests that tighter monetary measures are starting to take hold. Whether this trend persists heading into the latter half of the year will likely depend on how well the Central Bank can manage liquidity amidst ongoing fiscal pressures and the complexities of exchange rate variations.
To sum up, Nigeria’s broad money supply has experienced back-to-back declines as of May 2025, reflecting tight monetary conditions amidst robust year-on-year increases. The significant growth in net foreign assets contrasts with the declines in domestic liquidity. Finally, how the Central Bank Navigates these economic challenges in the rest of the year remains to be seen.
