CBN data shows slight return of cash into banks as money supply contracts amid falling foreign assets and easing inflation…..
Cash held outside Nigeria’s banking system declined by N197.68bn in January 2026, indicating that some money returned to formal banking channels during the month, according to the latest Money and Credit Statistics released by the Central Bank of Nigeria.
The data revealed that currency outside banks fell from N5.41tn in December 2025 to N5.21tn in January 2026. While this reflects a modest monthly improvement, the broader picture shows that a significant share of Nigeria’s physical cash still remains outside the banking sector.
Total currency in circulation edged slightly lower, declining by N1.74bn from N5.732tn in December to N5.731tn in January.
Despite the marginal dip in overall cash supply, the share of money held outside banks remained extremely high. The CBN figures showed that 90.91 per cent of currency in circulation was outside the banking system in January.
Although this ratio was lower than the 94.33 per cent recorded in December, it still means that more than nine out of every ten naira in circulation were not kept in bank vaults during the period under review.
The latest data suggests that while some cash flowed back into the financial system between December and January, Nigeria’s economy remains heavily dependent on physical cash held outside formal banking institutions.
Cash holdings still higher than a year ago
A comparison with the same period last year highlights a continued rise in the amount of physical cash circulating outside banks.
In January 2025, currency outside banks stood at N4.74tn, compared with N5.21tn in January 2026. This represents a year-on-year increase of N473bn.
Similarly, total currency in circulation expanded significantly over the same period. The stock of physical cash rose from N5.24tn in January 2025 to N5.73tn in January 2026, marking an annual increase of N495.68bn.
The share of cash held outside banks also rose slightly on a yearly basis. While the ratio stood at 90.48 per cent in January 2025, it climbed to 90.91 per cent in January 2026, showing that the dominance of cash outside the formal banking system remains largely unchanged.
Money supply contracts in January
Beyond cash circulation, the CBN data also showed that Nigeria’s broad money supply declined during the month.
The country’s money supply, commonly referred to as M3, dropped by N1.05tn to N123.36tn in January 2026, down from N124.41tn recorded in December 2025.
M3 represents the widest measure of liquidity in the economy, capturing cash in circulation, bank deposits, and other highly liquid financial assets held by households, businesses, and financial institutions.
Although January recorded a month-on-month decline, the money supply still expanded significantly compared with the previous year. In January 2025, broad money stood at N111.11tn, meaning the latest figure represents a year-on-year increase of N12.26tn.
Drop in foreign assets drives liquidity decline
An analysis of the components of money supply indicates that the January contraction was largely driven by a sharp decline in Nigeria’s net foreign assets.
According to CBN figures, net foreign assets fell to N29.61tn in January 2026, down from N31.51tn in December 2025, representing a monthly decline of N1.90tn.
Net foreign assets reflect the foreign holdings of the banking system including reserves, foreign currency deposits, and other external financial assets after subtracting external liabilities.
On a year-on-year basis, the figure also dropped significantly. Net foreign assets were N33.19tn in January 2025, meaning the latest figure represents a decline of N3.58tn over the 12-month period.
The fall in foreign assets occurred during a period when the naira strengthened in the official foreign exchange market.
Data from the Central Bank of Nigeria showed that the naira closed January 2026 at N1,391 per dollar, improving from N1,431 per dollar at the start of the month.
Throughout January, the currency traded mostly below N1,425 to the dollar, reflecting relatively stable conditions in the official market and improved liquidity in the foreign exchange system.
When the naira appreciates against the dollar, the naira value of foreign reserves and other external assets can decline when converted from foreign currencies.
Domestic assets continue to expand
While foreign assets declined, domestic liquidity indicators moved in the opposite direction.
Net domestic assets increased to N93.76tn in January 2026, up from N92.90tn in December 2025, representing a monthly increase of N850.76bn.
Net domestic assets represent financial claims within the domestic economy, including government borrowing, private sector credit, and other financial assets held within Nigeria’s banking system.
On an annual basis, domestic assets rose sharply from N77.92tn in January 2025 to N93.76tn in January 2026, reflecting a year-on-year increase of N15.83tn.
Mixed movement across liquidity measures
Further breakdown of the monetary aggregates showed mixed movements across different liquidity indicators.
Nigeria’s M2 money supply, a slightly narrower measure of liquidity, declined alongside M3. M2 stood at N123.35tn in January 2026, compared with N124.40tn in December 2025, marking a N1.05tn monthly drop.
M2 typically includes currency in circulation as well as demand deposits, savings deposits, and time deposits held within banks.
However, the most liquid component of the financial system—narrow money—moved in the opposite direction.
Narrow money rose to N42.33tn in January 2026, up from N42.14tn in December 2025, representing a monthly increase of N190.76bn.
This category consists mainly of physical cash and highly accessible bank deposits used for everyday transactions.
Compared with N36.77tn recorded in January 2025, narrow money increased by N5.57tn year-on-year, highlighting stronger transactional liquidity within the economy.
MPC cuts benchmark interest rate
The latest monetary data comes as the Central Bank of Nigeria continues efforts to manage liquidity and stabilise the economy through tight monetary policy.
At the end of its 304th meeting, the Monetary Policy Committee (MPC) announced a reduction in the benchmark Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent.
CBN Governor Olayemi Cardoso said the decision followed a careful assessment of economic risks and improving inflation trends.
“The Committee decided to reduce the monetary policy rate by 50 basis points to 26.5 per cent,” Cardoso announced.
The MPC also retained other key policy parameters, including the Standing Facilities Corridor at +50/-450 basis points around the MPR.
Additionally, the committee maintained the Cash Reserve Requirement at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks, and 75 per cent for non-TSA public sector deposits.
The latest decision marks the second rate cut under the current leadership of the apex bank, following a similar 50-basis-point reduction in September 2025 and a hold in November 2025.
Inflation continues downward trend
According to the CBN governor, the rate cut was supported by evidence that inflationary pressures are gradually easing.
Headline inflation declined slightly to 15.10 per cent in January 2026, down from 15.15 per cent recorded in December 2025, marking the eleventh consecutive month of year-on-year decline.
Food inflation also slowed significantly, falling to 8.89 per cent from 10.84 per cent, while core inflation dropped to 17.72 per cent from 18.63 per cent.
On a month-on-month basis, headline inflation fell sharply to –2.88 per cent in January, compared with 0.54 per cent in December, signalling further easing of price pressures.
Cardoso reaffirmed the committee’s commitment to maintaining an evidence-based policy approach aimed at ensuring price stability while safeguarding the resilience of Nigeria’s financial system.
Economic analysts have largely supported the MPC’s decision, noting that the modest rate cut is viewed primarily as a signal of policy credibility and stabilisation, rather than the beginning of an aggressive easing cycle.
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