Money Supply Hits 17-year High At N24trn

Money Supply Hits 17-year High At N24trn

In a bid to curb inflation and achieve stability in the nation’s economy, broad money rose to 17-year high of about N24 trillion in 2017, data obtained by LEADERSHIP from the Central Bank of Nigeria (CBN) has revealed.

Money supply comprises of broad and narrow money as apex bank uses broad money to measure the total volume of money supply in the economy. Broad money (M2) includes narrow money plus savings and time deposits, as well as foreign denominated deposits, while narrow money (M1) includes currency in circulation with non-bank public and demand deposits or current accounts in the banks.

According to CBN’s Money and Credit Statistics report, M2 crossed the N10 trillion threshold in 2009 and since then gained momentum and hits N23.59 trillion in 2016.

Data from CBN disclosed that M1 closed 2017 at N11 trillion from N11.26 trillion in, as both years mark significant increase in M1 since 2000.

On the other hand, increase in M2 followed a 2.1 per cent decrease in M1 to N11.03 trillion in 2017 from N11.27 trillion in 2016 (of which demand deposits fell by 2.1 per cent).

The year-on-year depository of the CBN showed a 1.74 per cent y-o-y increase in M1 to N24 trillion in 2017 from N23.59 trillion in 2016.

The breakdown of M2 revealed that Quasi Money contributed to M2 growth in 2017, gaining 5.2 per cent to N12.97 trillion from N23.59 trillion the CBN reported in 2016 as deposit account holders switched to higher yielding money market instruments.

Managing director, Financial Derivatives Company Ltd., Mr. Bismarck Rewane, said the 1.7 per cent increase in M2 last year was CBN’s move to tighten money supply so as to curb inflation rate and grow the nation’s Gross Domestic Product (GDP).

The National Bureau of Statistics (NBS) last week said inflation rate closed December 2017 at 15.37 per cent. According to him, “the CBN has managed to tighten money supply in the economy and it has help to a large extent in cutting inflation.”

However, demand deposits and currency outside banks dropped by 2.1 per cent and 2.07 per cent to N9.25 trillion and N1.78 trillion in 2017 respectively. Net Domestic Assets (NDA) dropped by 36.4 per cent to N9.1 trillion to offset a 62 per cent y-o-y increase in Net Foreign Assets (NFA) to N14.8 trillion in 2017 from N9.1 trillion reported by the CBN in 2016.

The increase in NFA resulted from increase in foreign exchange reserves position over increased global oil prices as well as increase in foreign portfolio inflows (FPIs) into the country as CBN devalued the naira.

On domestic assets creation, the decrease in NDA resulted from a 3.7 per cent y-o-y decline in Net Domestic Credit (NDC) to N25.85 trillion in 2017 from N26.9 trillion in 2016.

A breakdown of NDC by LEADERSHIP showed a 26.7 per cent y-o-y decrease in credit to the Government to N3.57 trillion accompanied by a 1.4 per cent increase in Credit to the private sector to N22.29 trillion in 2017 from N21.98 trillion in 2016. 

Analysts had explained that the increase in credit to the private sector was, in part, informed by recovering appetite for risk assets by commercial Bank in the face of relatively lower-yielding safe assets.

Speaking from the side of manufacturing sector, president of the Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, attributed the growth to CBN intervention. He said, “CBN intervention has helped the manufacturing sector otherwise money deposit banks were not forth coming in funding manufacturing sector in 2017.”

The CBN governor, Mr. Godwin Emefiele, at the last Monetary Policy Meeting (MPC) in 2017 had said members noted the structural constraints in the transmission of credit to the real sector of the economy as well as the rising unemployment level. According to him, “the committee urged the Management of the Bank to continue to encourage the deposit money banks to accelerate the rate of credit growth to the real sector of the economy.”

Read More at: https://leadership.ng/2018/01/22/money-supply-hits-17-year-high-n24trn/