Nigeria’s Shrinking Money Supply: A Sign of Shifting Economic Tides
Nigeria’s money supply experienced a notable contraction in January 2026, falling to N123.36 trillion, a four-month low. This decline, down from N124.41 trillion in December 2025, signals a deliberate tightening of monetary policy by the Central Bank of Nigeria (CBN) aimed at curbing inflation and stabilizing the naira.
The CBN’s Aggressive Liquidity Management
The CBN has been actively withdrawing liquidity from the banking system. In January 2026 alone, the apex bank absorbed approximately N13.41 trillion, a significant increase compared to the N2.77 trillion absorbed during the same period in 2025. This aggressive approach, utilizing tools like Open Market Operations (OMO), is a key driver behind the recent contraction in money supply.
OMO sales surged by 1,607.03% year-on-year to N8.53 trillion in January 2026, demonstrating the CBN’s commitment to managing excess liquidity. Ayodeji Ebo, Managing Director and Chief Business Officer at Optimus by Afrinvest, suggests this as well aims to attract foreign portfolio inflows and influence domestic interest rates.
Impact on Credit and Lending
The tightening liquidity conditions are already impacting credit availability. Credit to the government saw a slight decrease, falling 0.09% month-on-month to N34.19 trillion. Private sector credit also experienced a modest decline, dropping 0.78% to N75.241 trillion. While private sector credit grew 2.76% year-on-year, this represents slower lending momentum.
However, the CBN’s recent decision to reduce the Monetary Policy Rate from 27% to 26.5% on February 24, 2026, could offer some relief. Analysts at the Financial Market Dealers Association (FMDA) believe this adjustment may gradually support lending activity as banks respond to lower funding costs.
A Mixed Picture: Year-on-Year Growth Persists
Despite the monthly contraction, the money supply remains higher than the previous year. The January 2026 figure is 11.04% higher than the N111.10 trillion recorded in January 2025. This indicates that overall liquidity in the system remains elevated, even as the CBN attempts to rein it in.
Currency in circulation also saw a year-on-year increase of 9.47%, reaching N5.731 trillion in January 2026. Money held outside the banking sector declined monthly but remained 9.99% higher than the same period last year.
Looking Ahead: Balancing Inflation and Growth
The CBN faces a delicate balancing act. While controlling inflation is paramount, overly restrictive monetary policy could stifle economic growth. The effectiveness of the current strategy will depend on broader fiscal policies and external economic conditions.
The FMDA analysts caution that any significant recovery in lending will depend on government borrowing needs and overall system liquidity. The recent policy easing suggests a calibrated approach, aiming to balance inflation control with economic growth.
Frequently Asked Questions
Q: What is broad money supply (M3)?
A: Broad money (M3) includes currency in circulation, demand deposits, savings and time deposits, and foreign currency deposits.
Q: What is Open Market Operations (OMO)?
A: OMO involves the buying and selling of government securities by the CBN to influence liquidity in the banking system.
Q: Why is the CBN tightening liquidity?
A: The CBN is tightening liquidity to curb inflation and stabilize the naira.
Q: What does a lower Monetary Policy Rate imply?
A: A lower rate can encourage banks to lend more, as it reduces the cost of borrowing for them.
Did you know? Nigeria’s money supply growth dropped to a five-year low of 12.83% in November 2025 before the latest contraction.
Pro Tip: Keep an eye on OMO sales figures as a key indicator of the CBN’s monetary policy stance.
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