• Monday, April 22, 2024
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BusinessDay

Money supply growth slows on CBN liquidity squeeze

No more foreign currency collateral for naira loans — CBN

The pace of money supply growth in Nigeria dropped to 1.20 percent in February from 17.77 percent in the previous month following the liquidity tightening by the Central Bank of Nigeria (CBN).

Data from the CBN showed that money supply (M2), which consists of demand deposits, cash outside banks and quasi-money, increased to N93.96 trillion last month from N92.84 trillion in January.

“We can argue that the rate of increase has reduced significantly. If you look at the rate of increase before now, it has been quite high. As the new policy of mopping up takes root, by the time we begin to see the report for March, the impact will become more manifest,” Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, said.

The CBN has issued a total of N1.5 trillion in Open Market Operation bills since Olayemi Cardoso took the helm as governor in a bid to stem inflation and prop up the naira, whose steep decline has unsettled the economy.

Analysts have said the Federal Government’s measures to combat rising inflation will result in a withdrawal of N5 trillion from the banking sector, as the central bank raised banks’ cash reserve ratio (CRR) to 45 percent.

According to Charlie Robertson, head of macro strategy at FIM Partners UK Ltd, the CBN data suggests it is serious about ending the money printing that led to spiralling debt via Ways and Means, and inflation too.

Jimi Ogbobine, head of Agusto Consulting, said: “We need to appreciate that there’s a fiscal side of things, that CBN’s tightening is a monetary policy but there’s also a fiscal supply of funds into the market; for instance, particularly the FAAC allocation, which you can see as a result of the currency devaluation. The FAAC allocation has increased vis-a-vis where we were in the latter years of the Buhari regime.

“That’s a major cause of monetary pressures at the moment, and I think we need to appreciate that the CBN’s actions are not just going to work overnight. There has to be disciplined follow-on of all of the monetary policies by the CBN which is why we have to focus on the outcomes of this week’s MPC meeting. What will the MPC do? Will they raise rates again? Which is a direct signal that their focus is monetary tightening, be it reigning inflation, and interest yield attraction for foreign portfolio investors particularly, in a bid to stabilise the economy. But all these are palliative measures. For us to be on a sustainable path, we need to focus on the fiscal side as well, which is outside the CBN’s premise.”

The broad money (M3) was up by 2.00 percent in February compared with an increase of 18.21 percent in January.

The CBN data also revealed that currency in circulation rose by 1.09 percent to N3.69 trillion in February from N3.65 trillion in January 2024.

Credit to the government reduced by 6.22 percent to N33.92 trillion in February from N36.17 trillion.

Last month, the Monetary Policy Committee (MPC) unanimously increased the monetary policy rate by 400 basis points to 22.75 percent, the asymmetric corridor surrounding the MPR was adjusted to +100/-700 basis points from +100/-300, the CRR was raised from 32.5 percent to 45.0 percent, while the liquidity ratio was left at 30.0 percent.

BusinessDay had reported on Monday that with most of the members of the MPC taking a hawkish stance last month, expectations were high that another rate hike will be delivered at the end of their meeting on Tuesday (today).

Kingsley Moghalu, former CBN’s deputy governor and chairman, advisory board and board of directors, Africa Private Sector Summit, advised the CBN to continue its recently announced monetary policy stance of tightening the money supply for the next 24 months at least until inflation is brought under firm control in the single digits.