By Babajide Komolafe, Economy Editor
Reflecting the increasing need of Nigerians for cash to cope with persistent increase in prices of goods and services, money supply to the economy rose by 16.5 per cent in 2021 to N43.95 trillion, overshooting the 9.9 per cent target of the Central Bank of Nigeria, CBN, for the year.
Vanguard analysis of the latest Money and Credit data released by the Central Bank of Nigeria, CBN, showed that the sharp increase in money supply was driven by 18 per cent increase in Currency Outside Banks, COB, and 13 per cent increase in money in current account deposits of bank customers, otherwise known as Demand Deposits.
Reflecting the persistent increase in prices of goods and services across the country, fuelled first by the border closure and later by the pandemic occasioned economic lockdown, as well as increase in pump price of petroleum products and electricity tariff, the annual inflation rose steadily to four year high of 18.17 per cent in March 2021 before declining for eight consecutive months to 15.4 per cent in November last year.
The declining trend was reversed in December 2021 with the inflation rate rising by 23 basis points, bpts, to 15.63 per cent.
However, the persistent increase in inflation means that consumers need more money to purchase the same quantity of goods and services, a situation that usually leads to increased demand for money and hence increase in money supply.
Consequently, the CBN reported a 16.95 per cent increase in Broad Money supply (M2) to N43.95 trillion in 2021 against N37.7 trillion in 2020.
Further analysis showed that the increase in M2 was driven by 13.7 per cent Year-on-Year, YoY, increase in Narrow Money supply (M1), which comprises Currency Outside Banks (COB) and Demand Deposits (Current Account deposits of bank customers).
Vanguard analysis of CBN data showed that M1 rose to N18.16 trillion in 2021 from N15.97 trillion in 2020.
The increase in M1 was occasioned by 18 per cent surge in Currency Outside Bank (COB) which rose to N2.95 trillion in 2021 from N2.5 trillion in 2020, while Demand Deposit rose by 13 per cent to N15.22 trillion in 2021 from N13.48 trillion in 2020.
Further analysis showed that 16.5 per cent in Broad Money supply (M2) was also driven by an 18.6 per cent rise in Quasi Money, which comprises Savings deposits, Fixed Deposits and Foreign currency deposits of bank customers.
According to the CBN, Quasi money rose by N4.05 trillion to N25.79 billion in 2021 from N21.73 trillion in 2020.
The upward trend in money supply is expected to continue in 2022, given analysts’ projection of further rise in the inflation rate.
“We expect domestic inflation to increase further in the coming months due to the imminent removal of petrol subsidy and the planting season effect amongst other factors”, said analysts at Financial Derivatives Company Limited, in the review of the January inflation figure released by the National Bureau of Statistics, NBS, last week.