CBN tightens monetary policy as currency circulation, private sector credit surge

By Esther Agbo

The Central Bank of Nigeria (CBN) is facing the dual challenge of controlling inflation while managing the rising cash flow in the economy, as highlighted in its latest Money and Credit report. 

In July 2024, currency held outside of Nigeria’s banking system declined to N3.66tn, marking a 3.32 percent drop from the previous month. 

This figure now represents 90.39 percent of the total currency in circulation, a slight reduction from the 93.59 percent recorded in June. 

Despite this dip, the overall currency in circulation saw a marginal increase to N4.05 trillion from N4.04 trillion.

The year-to-date analysis reveals a significant 11.05 per cent growth in currency circulation, a sharp contrast to the 56.17 percent surge observed during the same period in 2023. 

This trend underscores the complexities the CBN faces in its fight against inflation, with excess cash in the economy identified by the Monetary Policy Committee (MPC) as a key driver of rising prices.

Adding to the economic pressure, the broad money supply (M3), which encompasses the total money available in the economy, soared to N106.27tn in July 2024. 

This increase comes despite the CBN’s ongoing tightening measures, which aim to curb the money supply in a bid to control inflation.

At its recent meeting in July 2024, the MPC responded by raising the Monetary Policy Rate (MPR) by 50 basis points, bringing it to 26.75 per cent, up from 26.25 percent in June. 

This move reinforces the apex bank’s hawkish approach as it grapples with inflationary pressures.

Moreover, credit to the private sector continues to rise, reaching N75.48 trillion in July 2024, reflecting a 3.13 percent increase from the previous month. 

This growth highlights the ongoing demand for credit in the private sector, even as the CBN tightens its monetary policy.