FX inflows boost liquidity, as high costs curb private borrowing

…as credit to government grows by 1.97% to ₦40.38 trillion

Stronger foreign currency inflows drove a sharp expansion in Nigeria’s money supply in May 2026.

 Yet businesses remained hesitant to secure new debt despite recent interest rate cuts by the Central Bank of Nigeria (CBN).

Data from the CBN’s May 2026 Monetary and Credit Statistics, analyzed by the Financial Markets Dealers Association (FMDA), revealed that broad money supply (M_3) grew by 3.38% month-on-month, climbing to ₦129.21 trillion from ₦124.99 trillion in April. Similarly, money supply (M_2) rose by 3.38% to ₦129.20 trillion.

This liquidity surge was primarily propelled by Net Foreign Assets (NFA), which jumped 12.23% to ₦26.95 trillion from ₦24.01 trillion in April. 

The FMDA attributed this NFA growth to robust external earnings, likely bolstered by higher crude oil export revenues during the United States–Iran conflict, alongside other autonomous foreign exchange inflows. 

Net Domestic Assets (NDA) also edged up by 1.28% to ₦102.26 trillion, further injecting liquidity into the financial system.

Despite the liquidity boom, private sector credit remained stagnant, creeping up by just 0.57% to ₦81.04 trillion. This muted response defies expectations that the CBN’s February 2026 interest rate cut would trigger a borrowing wave among households and businesses.

The FMDA noted that global and domestic headwinds continue to overshadow cheaper credit.

Disrupted international shipping routes stemming from the U.S–Iran conflict have also driven up freight costs and manufacturing expenses. Faced with volatile input costs and supply chain uncertainty, many firms are opting to preserve cash and freeze expansion plans rather than take on new debt.

In contrast, public sector credit demand persisted, with credit to the government rising 1.97% to ₦40.38 trillion. Currency outside banks also increased by 2.15% to ₦5.19 trillion, while currency in circulation ticked up 0.77% to ₦5.69 trillion.

Conversely, bank reserves dropped 2.43% to ₦33.76 trillion, and base money contract by 1.98% to ₦39.45 trillion.

While oil-driven FX inflows are successfully liquefying the economy, global geopolitical friction and structural risks are stalling the transmission of monetary easing into real-sector investment.