Rising Inflation Thrust Money Supply to N48.87trn in June, Highest Since 2010

Kayode Tokede

Latest data released by Central Bank of Nigeria (CBN) has revealed that money supply in the economy recorded the highest growth in 10 years, gaining 9.14 per cent or N4.46 trillion Year-till-Date (YtD) to N48.87 trillion in June of this year.

The National Bureau of Statistics (NBS) last Thursday in its Consumer Price Index (CPI) disclosed that Nigeria’s inflation rate reached a 65-month high of 18.6 per cent in June 2022 from 17.71 per cent in May. Inflation had opened January 2022 at 15.60 per cent.

CPI measures the average change over time in price of goods and services consumed by the general public for day-to-day living i.e it measures the inflation rate.

The significant increase in money supply reflects increasing demand for cash by the general public caused by continued rise in prices of goods and services, evidenced by the fifth consecutive months rise in the inflation this year.

According to THISDAY findings, the surge in money supply is driven by increased borrowing by the federal government  and commercial banks’ lending to the private sector propelled by the Loan-to-Deposit Ratio (LDR) policy by the CBN.

The “Credit and Money” supply data by the apex bank revealed that money supply (M3) grew by 23.68 per cent to N48.87 trillion in June 2022 from N39.51 trillion reported June 2021.

Money supply is defined as total stock of money in an economy comprising currency (notes and coins) and deposit with commercial banks in Nigeria and it consists of broad money (M2) and narrow money (M1).

Further analysis of money supply also showed that major components M2 and M1 recorded sharp increases in June 2022.

According to the CBN data, M2, rose by 25.56 per cent or N9.93 trillion in its Year-on-Year (YoY) growth to N48.8 trillion as of June 2022 from N38.86 trillion ending June 2021, while M1 increased by 27.26 per cent or N4.37 trillion YoY to N20.39 trillion as of June 2022 from N16.02 trillion reported June 2021.

Also contributing to the huge growth in money supply in six months of 2022, is the increase in credit to the private sector and government during the period.

The CBN data showed that credit to the government rose by 55 per cent or N6.4trillion to N17.99 trillion as of June from N11.59 trillion in the corresponding period of 2021.

Further analysis showed that the growth in credit to the government was 34.86 percentage points higher than the growth in credit to the private sector as of June 2022.

The CBN reported 20.37 per cent or N6.64 trillion increase in credit to private to N39.27 trillion as of June 2022 from N32.64 trillion reported in June 2021.

With the CBN retaining 65 per cent minimum Loan-to-Deposit Ratio (LDR), among other regulating policies to boost commercial banks lending, credit to private sector between January and June 2022 has added N4.09 trillion and reached its all-time high.

With the latest figure, it means that credit to the private sector in YtD performance has added 11.61 per cent or N6.08 trillion from N35.18 trillion reported by the CBN in January 2022.

According to the CBN, credit to the private sector was N35.99 trillion in February and hits N36.47 trillion in March 2022. It crossed the N37 trillion mark in April to N37.68 trillion. 

The CBN in its money and credit statistics revealed that credit to the private sector reached N38.1trillion in May 2022.

The CBN had revealed that credit to private sector reached N35.73trillion in 2021 and reported N26.65trillion credit to private sector in 2019.

THISDAY can report that credit to private sector in 2019 when the LDR policy was introduced, gained N3.75trillion or 16.33 per cent to close at N26.69trillion from N22.95trillion it opened in 2018.

In 2020, credit to private sector added N3.5trillion or 13.12 per cent to close December 2020 at N30.15trillion from N26.65trillion recorded in January 2020.

However, in the full year of 2021, credit to private sector rose by N5.08trillion or 16.57 per cent close 2021 at N35.38trillion from N30.65trillion reported by the CBN in January 2021.

Analysts in a chat with THISDAY attributed increased credit to the government as a factor contributing to growth in money supply, which they noted is also a major driving force behind the upward inflationary trend.

They added that increasing inflation rate might truncate its impact on the nation’s economy at large.

Commenting, Vice President, Highcap securities Limited, Mr. David Adnori said, “In general, an increase in the money supply drives inflation rather than the other way around. In our typical case, money supply growth far outstrips economic growth, which is a typical condition for stoking inflation.

“In terms of inflation, the majority of the inflationary pressure we are experiencing is supply-side driven, as a result of issues like insecurity, poor infrastructure, insufficient logistics, and cost push factors from the external environment, such as the Russian-Ukraine conflict. As a result, I would ascribe a higher percentage (about 65-70per cent) of the money supply growth to inflation. I believe the balance is due to a higher credit growth to the economy, notably to the government.”

On his part, CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka noted that the N39.27 trillion credit to private sector as at June, 2022, still within the range of credit growth in 2021.

According to him, “an average monthly growth rate of 1.66per cent since December, 2021, is an indication of a moderate credit extension to the private sector of the economy, in consonance with low absorptive capacity of the economy itself, and as possibly programmed by CBN, given mirage of problems bedevilling the Nigerian economy.

“An economy with low productivity and total reliance on import must guide its credit expansion, in order not to put too much pressure on a faulty exchange rate management. Further credit expansion in the midst of poor monetary and fiscal coordination, could spell doom for the economy. This is one of the reasons our economy is not doing well.”

Commenting on the driver of credit to real sector, analyst at PAC Holdings, Mr. Wole Adeyeye attributed the growth to 65 per cent LDR policy of the CBN, stressing that many banks complied with the directive on the minimum requirement.

He added that, “the intervention programs by the CBN in various sectors of the economy drove the increase as borrowers took advantage of the low interest rate.

The minimum LDR of 65per cent and intervention programs by the CBN in various sectors have contributed to the strong economic growth witnessed in the past quarters.”

Also speaking, the Chief Operating Officer, InvestData Ltd, Mr. Ambrose Omordion noted that post-covid-19 business activities contributed to N38.1 trillion credit to private sector as of June.

He expressed that the recent increase in CBN’s Monetary Policy Rate (MPR) might disrupt credit to private sector going forward, stressing that cost of production tends to witness increase and impact on local economy.

However, the surge in money supply is driven by increased borrowing by the Federal government and lending to the private sector propelled by the various intervention funds of the CBN.

Investment analysts in a chat with THISDAY said increased credit to the government as a factor responsible for the sharp growth in money supply, which they noted is also a major driving force behind the upward inflationary trend.

According to Adeyeye, “Money supply has been elevated over the last few months, mainly driven by a relatively dovish stance of the CBN. In our view, we think that the high money supply partly drove Nigeria’s Inflation.