Members of the Monetary Policy Committee of the Central Bank of Nigeria have blamed the excess cash in circulation for the accelerating inflation in the country.
This was revealed in the statements they made at the February MPC meeting, which was posted on the website of the apex bank.
One of the MPC members, Pauline Odinkemelu, said, “On the monetary sector, growth in money supply (M3) rose by 18.25 per cent to N93.72tn at end-January 2024 over the preceding December. Broad money (M2) and narrow money (M1) grew by 17.81 and 3.68 per cent, respectively at end-January 2024.
“The growth in broad money supply was driven by the rise in other deposits, transferable deposits, and securities other than shares. In my view, the growth in M1 could further worsen inflationary pressures in the economy, as it signals rising transactional motives or excess liquidity in the system. The motive for holding excess liquidity is generally classified into precautionary or voluntary motives.”
According to to Odinkemelu, precautionary excess liquidity portion is useful as a buffer for insuring bank capital and uncertainty surrounding customers’ withdrawal and does not have negative effect on monetary policy.
Money Supply statistics from the CBN as of January 2024 revealed that currency in circulation surged by 163 per cent in January 2024 to N3.651tn from N1.39tn in the corresponding period of last year.
Month-on-month, there was a marginal 0.1 per cent decline from the historic high of N3.653tn in December 2023.
In the same vein, currency outside banks grew by 314 per cent to N3.28tn in January 2024 from N0.79tn (January 2023), implying that 89.86 per cent of the currency in circulation was outside the banking system as of January 2024.
That was a notable rise from the 57.14 per cent recorded in January 2023, following the CBN’s naira redesign.
