Data released by the Central Bank of Nigeria indicates that the nation’s currency supply experienced its first contraction in 2025, registering a decline to N110.32tn in February, down from N110.94tn in January.
This 0.56 percent reduction on a month-to-month basis occurs amidst ongoing initiatives by the central monetary authority to regulate liquidity within the financial system, following previous indications of monetary tightening and adjustments to foreign exchange rates.
Despite this marginal deceleration, the current figure remains significantly elevated when juxtaposed with the corresponding period of the preceding year. In February 2024, the currency supply stood at N95.56tn, reflecting a year-on-year surge of 15.45 percent.
The expansion in the M3 currency supply, which encompasses both net foreign assets and net domestic assets, provides a comprehensive perspective on the nation’s monetary dynamics.
The slight constriction observed in February reflects developments across both foreign reserves and domestic credit. A closer examination of the underlying components reveals that net foreign assets diminished by 8.62 percent, falling to N32.34tn in February, down from N35.39tn in the preceding month.
This represents a reduction exceeding N3tn and may be attributed to diminished external reserves or heightened foreign exchange interventions by the central bank, aimed at stabilizing the naira.
Conversely, net domestic assets increased to N77.97tn in February, up from N75.55tn in January, representing a 3.21 percent rise, suggesting continued credit expansion within the domestic economy.
On a year-on-year basis, net foreign assets exhibited a sharp increase from N7.41tn recorded in February 2024, reflecting a growth exceeding 337 percent. This surge reflects the impact of exchange rate reforms and augmented foreign capital inflows.
The 0.56 percent reduction mirrors the trend observed in M3. However, on an annual basis, M2 increased by 17.39 percent, up from N93.97tn in February of the previous year. The data underscores a broader expansion in currency supply over the past 12 months, consistent with escalated government expenditure and other fiscal measures.
In contrast, narrow currency supply, which includes currency in circulation and demand deposits, increased in February. The figure rose to N37.57tn, up from N36.77tn in January, representing a 2.18 percent increase.
When compared to February 2024, when narrow currency stood at N30.28tn, this translates to a growth rate of 24.07 percent. This increase may be attributed to heightened transactional demand for cash and short-term liquidity requirements amidst ongoing inflationary pressures and currency volatility.
The reduction in overall currency supply, despite the increase in narrow currency and net domestic assets, suggests a shift in the structure of liquidity. The decline in net foreign assets appears to have exerted a significant influence on M3, even as domestic credit conditions remain stable.
The substantial increase in foreign assets observed over the past year now appears to be stabilizing, potentially due to stabilizing inflows or the effects of the Central Bank’s interventions in the foreign exchange market.
With inflation remaining elevated and the naira exhibiting signs of stabilization, the slight contraction in February’s currency supply may provide some flexibility for the central bank to fine-tune its policy instruments.
The latest figures are anticipated to inform deliberations at the forthcoming Monetary Policy Committee meeting, as the central bank continues to navigate the delicate balance between inflation control and economic growth.
