By Joke Kujenya
MONEY SUPPLY in Nigeria saw a slight decrease, falling to N92.3 trillion in March 2024 from N93.9 trillion in February. This shift, reported by the Central Bank of Nigeria (CBN), is largely attributed to the apex bank’s decision to increase interest rates.
The rise in interest rates appears to have influenced depositor behaviour significantly.
Demand deposits, which indicate a preference for more liquid forms of money, climbed from N26.8 trillion to N28.8 trillion.
Additionally, there was an increase in currency held outside of banks, which grew from N3.4 trillion to N3.6 trillion.
This move towards cash comes in the aftermath of the end of the CBN’s controversial new naira note policy.
While demand deposits and currency outside banks increased, quasi-money—which includes savings deposits, time deposits, and other near-money assets—experienced a notable decline, dropping from N63.69 trillion to N59.8 trillion, suggesting that the public is shifting away from longer-term savings in response to the higher interest rates.
The depreciation of the naira against the dollar continues despite these policy changes, with the currency further dropping to N1533.99 per dollar on Thursday.
The adjustments in the components of the money supply are reflective of the broader economic strategies and responses.
M1, which covers physical currency and demand deposits, saw an increase, indicating a higher liquidity preference. Conversely, the broader money measures (M2 and M3) saw reductions.
The shift towards more liquid assets and the increase in cash holdings outside banks highlight a significant response by the Nigerian public to current economic conditions and monetary policies.
The impact of these changes continues to influence the financial landscape as the CBN navigates through economic challenges.
Joke Kujenya
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