- Nigeria’s money supply fell to N119.01 trillion in May 2025.
- This marks the second decline in the money supply for the year.
- Net foreign assets decreased by 8.1% from April to May.
- Domestic assets saw a rise of N3.76 trillion over the same period.
- M1 dropped by 1.5% but remains much higher than last year.
May Sees Decline in Nigeria’s Broad Money Supply
In a notable development, Nigeria’s broad money supply experienced its second decline this year, dipping to N119.01 trillion in May 2025, as revealed in the latest data from the Central Bank of Nigeria (CBN). This reduction translates to a month-on-month contraction of N292.75 billion or 0.25% from the previous month’s figure of N119.30 trillion in April. Previously, the first decline of the current year occurred in February, where it fell to N110.32 trillion from N110.94 trillion in January. It is essential to recognize that, despite these two declines, the overall money supply remains close to record levels, a reflection of earlier liquidity surges along with the ongoing adjustments in the country’s monetary policy.
Liquidity Trends Show Internal Adjustments
A deeper analysis reveals a noteworthy shift in the structure of Nigeria’s liquidity base. Net foreign assets, which had seen an uptick to N49.87 trillion in April, suffered a significant drop to N45.81 trillion in May, marking a decline of N4.05 trillion or 8.1%. This contraction hints at a potential weakening of Nigeria’s external asset position, possibly due to drawdowns from foreign reserves or decreased inflows of currency. Meanwhile, net domestic assets countered some of this decline, rising from N69.43 trillion to N73.19 trillion within the same timeframe, a rise of N3.76 trillion or 5.4%. This growth in domestic liquidity has been vital for offsetting foreign asset losses and has played a crucial role in preventing a more severe decline in the overall money supply. Notably, M2, which is an intermediate measure of money supply, also fell marginally from N119.28 trillion in April to N118.99 trillion in May, reflecting a tighter trend across the financial system.
Significant Year-on-Year Growth Metrics
Interestingly, the contraction did not spare narrow money, or M1, which encompasses currency in circulation alongside demand deposits. This metric decreased from N41.00 trillion to N40.38 trillion in May, representing a decline of N624.5 billion or 1.5%. It’s worth mentioning that even with the month-on-month drop, M1 remains significantly higher compared to last year, where it was at N33.38 trillion in May 2024, showcasing an annual growth of 20.9%. This observation reinforces the notion that, despite the ongoing tightening efforts by the CBN, the money system continues to be flooded with liquidity. Moreover, the year-on-year data highlights that the total money supply (M3) soared by almost N20 trillion from May 2024 to May 2025, primarily driven by an increase in net foreign assets, which surged over 198% during this period.
Impact of Monetary Policies on Liquidity Dynamics
However, alongside this increase in foreign assets, domestic liquidity saw a reduction too. Net domestic assets dropped significantly by N10.71 trillion over the same span, falling from N83.90 trillion to N73.19 trillion. This decline indicates a tightening credit market, possibly due to escalating government borrowing or a reduction in the CBN’s claims on the financial sector. The apex bank’s stringent monetary policy actions—characterized by a high Monetary Policy Rate and intensive open market operations—are evidently starting to permeate through the economic framework.
Future Implications for Nigeria’s Financial Landscape
The recent contraction observed in May, especially concerning liquid money forms, appears to signal that the CBN’s measures are yielding results. Whether this trend will persist throughout the second half of the year hinges on the strategies the central bank employs to navigate liquidity pressures, within the context of fiscal challenges and fluctuating exchange rates. The interplay between fiscal policies and monetary adjustments will be crucial for stabilizing the economy moving forward.
In sum, Nigeria’s money supply faced a second decline this year, which, while alarming, remains overshadowed by high overall levels. Divergences in domestic and foreign assets reveal complex monetary interactions. As the CBN tightens its monetary policy, the future of liquidity management will be critical for economic stability.
