Nigeria’s financial sector recorded a notable development in April 2025 as the country’s broad money supply (M3) rose by 4.2%, reaching a record ₦119.1 trillion, according to data released by the Central Bank of Nigeria (CBN). The increase, which reflects greater liquidity within the economy, was largely driven by a surge in savings deposits and demand deposits—key components of the banking system’s liability base.

Key Drivers of the Increase

The uptick in money supply is mainly attributed to:

• Higher savings deposits, indicating that more Nigerians are setting aside income amid economic uncertainty and inflationary pressures.

• Growth in demand deposits, which represent funds that can be withdrawn without notice, such as current accounts used by individuals and businesses.

Analysts suggest that the rise in deposits may be linked to increased government spending and monetary injections into the economy, including disbursements for capital projects and social intervention programs.

What is Money Supply?

Money supply refers to the total amount of monetary assets available in an economy at a specific time. It includes:

• M1: Cash in circulation and demand deposits.

• M2: M1 plus savings deposits and time deposits.

• M3: M2 plus large time deposits, institutional money market funds, and other larger liquid assets.

The April surge falls under M3, representing a broader measure that helps central banks and economists gauge the level of liquidity and inflation risks in the economy.

Inflation and Policy Implications

The growth in money supply comes amid persistent concerns about inflation, which has remained in double digits for months, driven by high energy prices, food insecurity, and supply chain disruptions.

While an increase in savings is often seen as a sign of confidence in the banking system, excessive liquidity can stoke inflation if not matched by corresponding growth in goods and services. This is why the CBN’s Monetary Policy Committee (MPC) continues to monitor liquidity levels closely.

In recent months, the MPC has responded by raising interest rates to curb inflation, with the monetary policy rate (MPR) currently at 24.75%, one of the highest in sub-Saharan Africa.

Sectoral Insights

Banks have benefited from the influx of deposits, improving their loan-to-deposit ratios and overall liquidity positions. However, lending to the real sector remains cautious due to elevated risks in manufacturing, agriculture, and small business operations.

“The rise in money supply is a double-edged sword,” says Dr. Ifeoma Okonkwo, an economist at Lagos Business School. “It shows that the financial system is deepening, but it also raises the stakes for inflation control and productive investment.”

Way Forward

To make the most of this growth, financial experts recommend:

• Improved fiscal discipline to reduce inflationary spending.

• Investment in productive sectors, such as agriculture and manufacturing, to absorb liquidity.

• Financial inclusion efforts to ensure that savings growth spreads beyond urban elites to rural populations.

As Nigeria navigates complex economic terrain, the April surge in money supply is a clear signal of changing dynamics in consumer behavior, government finance, and banking operations. Whether this liquidity boom will lead to sustainable economic growth or fuel further inflation, will depend on how monetary and fiscal policies are balanced in the months ahead.

For more updates on Nigeria’s economy, banking, and inflation trends, stay connected with Xamblog.com.

Last Updated on May 30, 2025 by kingstar