{"id":499,"date":"2023-09-04T10:06:31","date_gmt":"2023-09-04T10:06:31","guid":{"rendered":"https:\/\/arritoneconsult.com.ng\/blog\/?p=499"},"modified":"2023-09-04T10:06:31","modified_gmt":"2023-09-04T10:06:31","slug":"nigerias-money-supply-surges-by-17-in-two-months","status":"publish","type":"post","link":"https:\/\/arritoneconsult.com.ng\/blog\/2023\/09\/04\/nigerias-money-supply-surges-by-17-in-two-months\/","title":{"rendered":"Nigeria’s Money Supply Surges by 17% in Two Months"},"content":{"rendered":"\n

Nigeria’s Money Supply Surges, with a staggering 17% increase over just two months, up to July. This rapid expansion has been primarily attributed to a substantial N7.71 trillion uptick in the naira value of foreign currency deposits, driven by recent reforms in the foreign exchange (forex) market.<\/p>\n\n\n\n

Financial analysts are expressing growing concerns about the implications of this surge for the Nigerian economy. These concerns include an anticipated increase in inflationary pressure, the likelihood of a further hike in the monetary policy rate (MPR), and heightened production costs.<\/p>\n\n\n\n

Nigeria has been grappling with a persistent upward trend in its inflation rate, reaching 24.8% in July. This inflationary pressure has been driven by a multitude of factors, including insecurity, the Russia-Ukraine war, naira depreciation, and the expansion in money supply.<\/p>\n\n\n\n

The recent measures introduced by the Central Bank of Nigeria (CBN) to reform the forex market have exacerbated the growth in money supply. These measures, which include the elimination of multiple exchange rates and the introduction of the ‘willing seller-willing buyer’ model in the Investors and Exporters (I&E) forex window, resulted in a substantial 70% depreciation of the naira to N789.08 per dollar in July, compared to N464.67 at the end of May.<\/p>\n\n\n\n

However, experts have noted that other factors, such as changes in customer behavior, interest rates, investments, and general economic conditions, may have also contributed to the sharp spike in money supply.<\/p>\n\n\n\n

During this two-month period, a critical component of the money supply known as Quasi Money, comprising foreign currency deposits, savings, and fixed deposits of bank customers, surged by N7.71 trillion, representing a 23% increase, reaching N40.77 trillion in July from N33.06 trillion in May. This translated to an average growth rate of 11.45% over the two months, a sharp contrast to the mere 0.64% average growth recorded in the preceding five months from January to May.<\/p>\n\n\n\n

Further analysis reveals that this N7.71 trillion increase in Quasi Money triggered a 17% surge in the Broad Money Supply (M2) during the same two-month period, reaching N64.93 trillion in July from N55.55 trillion in May. Prior to June, M2, which comprises Narrow Money (M1) and Quasi Money, had been growing at an average monthly rate of 1.23%, reaching N55.55 trillion in May from N52.84 trillion in January.<\/p>\n\n\n\n

The average growth rate in M2 spiked to 8.3% between June and July. According to CBN data, Quasi Money was responsible for 82% of the growth recorded in M2 during this two-month period, with M1 accounting for the remaining 18%.<\/p>\n\n\n\n

Commenting on this development, Nnamdi Nwizu, Co-Founder of Comercio Partners, a Lagos-based investment bank, emphasized the link between the increase in Quasi Money and the 70% depreciation of the naira in the Import and Export (I&E) window due to CBN measures. Nwizu also acknowledged that the relationship between naira depreciation and the value of foreign currency deposits is not straightforward, as various factors, including customer behavior and economic conditions, can influence Quasi Money growth.<\/p>\n\n\n\n

Tunde Abidoye, Head of Equity Research at FBNQuest Securities Limited, highlighted the potential impacts of the Quasi Money surge on the economy. He pointed out that it could negatively affect consumer spending, investment by firms, and overall economic activity, as people hold onto more liquid assets. Additionally, it reflects inflation expectations, as individuals cut down spending in anticipation of higher inflation rates, indicating reduced confidence in the economy.<\/p>\n\n\n\n

Nigeria’s Money Supply Surges the growth in Quasi Money could impact the cost of imports, potentially leading to imported inflation, which could be exacerbated if businesses pass on increased costs to consumers. Given Nigeria’s high import dependency, this could exert additional pressure on domestic inflation.<\/p>\n\n\n\n

Regarding monetary policy implications, Nwizu emphasized that the CBN needs to consider the surge in Quasi Money when formulating policies, which may involve measures like higher interest rates and liquidity management to ensure financial stability. Controlling inflation remains a crucial objective, and the CBN is likely to focus on mopping up excess money in circulation through contractionary monetary policies.<\/p>\n\n\n\n

The sharp growth in Quasi Money, potentially driven by naira depreciation, presents a complex interplay of factors with significant implications for the Nigerian economy. Close monitoring and further analysis of the relationship between Quasi Money growth, naira depreciation, and inflation will be essential for informed decision-making by financial analysts and policymakers in the coming months to effectively manage the nation’s economy.<\/p>\n\n\n\n

For more news visit https:\/\/arritoneconsult.com.ng\/blog\/wp-admin<\/a><\/p>\n\n\n\n

For more educational posts, visit examhood.com.ng<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Nigeria’s Money Supply Surges, with a staggering 17% increase over just two months, up to July. 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