The Central Bank of Nigeria’s interest rate hikes have continued to be insufficient in managing the money supply and inflation as Nigeria’s money supply to the economy hits N49.3 trillion, its highest level on record.
Considering the multiple interest rate hikes implemented since July are intended to combat inflation and lower the amount of money in circulation, this increase in the money supply is concerning.
Analysts have attributed the surge in money supply to federal government borrowing to finance the budget, hike in the inflation rate, and numerous interventions by the CBN.
A financial Economist and Professor of Capital Market at the Nasarawa State University Keffi, Uche Uwaleke said the mounting money supply is aiding hike in the inflation rate and forcing the apex bank to hike its Monetary Policy Rate (MPR).
“The CBN has realised that the money supply is getting higher and it is the reason behind hike in MPR to 15.5 per cent from 14 per cent to curtail further rise in inflation rate,” he added.
Trillions of naira in CBN intervention funds, as well as CBN bailouts of federal and state governments through its Ways and Means powers, have boosted the money supply and created a strong inflationary environment.
According to the data, the Ways and Means balance was N16.1 trillion in August 2021 but has since risen to N22.068 trillion in August 2022. This is a 36 per cent increase year on year.
A cursory examination of the data also reveals that the private and public sectors received sector credit worth N40.1 trillion and N21 trillion, respectively. As of August 2022, Nigeria had the highest-ever net domestic credit to the economy, at N61.1 trillion.
The data also shows that Nigeria’s economy expanded by an average of 1.3 per cent from 2016 to 2021. In contrast, during the same period, the money supply increased from N23.6 trillion to N43 trillion.
